Case Study: Employee Cost

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Salary and benefits often represents a large portion of expenses. If you are using average cost per employee to forecast changes in salary expense, however, you may be making sizeable errors. This first example shows how significant the difference can be between average and marginal rates.

 

At this healthcare company, the average annual salary cost per employee has risen each year, growing from $46,308 to 51,590. However, each additional employee added $81,736 annually to salary cost. This has been consistent for the few years shown here, and illustrates how using an average rate when estimating changes can produce inaccurate results.

 

At this brokerage firm, a similar relationship was evident from 1994-1997. 1998-2000 were consistent with this relationship but showed more variability. As employees decreased in 2001-2003, the relationship changed significantly. This indicates that the employees being let go were paid less than the employees that were being added during the growth years.

 

This bank also shows a consistent relationship for the three years available. The bank has the highest marginal rate (suggesting the employees being added are in high-salary positions), but appears to have lower total costs at comparable employee levels.

 

 

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