Show Me the Money! 

Recently I have heard this expression a few times. Since this is close to tax time, it seems a timely topic. It is about this time of year that people begin to think of taxes. One of the family jokes that my children were fond of saying was, "Dad, can we bring our friends in to watch you figure the income taxes?"

In calculating hourly rates for printing plants, or any other business for that matter, we need to know how much everything costs. Once we determine what something costs, it is just a matter of arithmetic to convert this into a cost per hour.

For equipment it is a simple matter to take the cost of the equipment, divide that by the number of years you are willing to wait to get your money back, divide that by the number of hours in a working year and get the cost per hour.

Labor sounds equally simple! If a person is paid $12.00 per hour it costs $12.00 per hour for to work on a job. -----NOT!

Let's look at an example of a $12.00 per hour pay in some detail.

We have to pay:
Workers compensation-usually in the range of 4%. I will use an example of 4.8%.
Workers compensation will add 58 cents per hour to your hourly cost.

Medical insurance, or health insurance for employees-in the range of $175.00 per month.
Medical insurance will add about $1.09 to your hourly cost.

Payroll taxes FICA, Medicare, FUTA, State Unemployment and Local taxes 

will add about 10.38% or about $1.25 to your hourly cost

Then we have sick leave, vacation time, and holidays. This is a bit more complex to calculate, but it is easy with a computer spreadsheet.

The way to calculate sick, vacation, and holiday time is to add the number of days that you give for sick leave, the number of days for vacation and the number of holidays. Example: Two weeks paid vacation, five days sick leave and the customary ten holidays will total to 25 days.

These 25 days will cost:
Nominal wage . . . 12.00 per hour
Workers comp 0.58 per hour 
Medical insurance 1.09 per hour
Payroll tax 1.25 per hour
For a total of 14.92 per hour 

$14.92 per hour for 8 hours per day for 25 days of not being there will cost $2,984.00.
In a year, there are about 50 weeks that the plant doors are unlocked-ten days the shop is locked up. Eight hours a day x 5 days a week x 50 weeks per year means that there are about 2000 hours that the plant is open.

In this example, the person will be on the job 2000 hours minus 25 days x 8 hours per day for a total of 1800 hours. This means that the holiday, sick, and vacation time will cost a total of 200 hours x $14.92 or $2984.00.

This $2984.00 must be distributed over the 1800 hours that the person is in the job. That will add $1.66 to your hourly labor cost for that person.

This means that the grand total HOURLY cost for labor will be:

Nominal wage 12.00
Workers Comp 0.58
Medical insurance 1.09
Payroll taxes 1.25
Sick/vacation 1.66
Total $16.58 *
* This will not be exactly the same as the spreadsheet because of rounding functions.

The employee may see this from a different perspective

The employee sees it as:

I am paid per hour 12.00
Minus 7.65% FICA/Medicare of 0.92
Minus 18% federal tax 2.16
Minus 8% state tax 0.96
Leaves me with $7.96

Looked at from the Shrinking Dollar Perspective
It costs $16.58 per hour to pay $12.00 to take home $7.96.

+ + + + + + + + + + + + + + + + + + + + + +

The way to calculate the holidays is as follows:

For those of you that want to play with the numbers on a spread sheet, the formula used in Column (L) follows:

(SUM(H14:K14)*8*M14) / (HoursYear-M14*8)

This formula (SUM(H14:K14)*8*M14) takes the sum of ((the nominal wage ($12.00) + the hourly cost of accident insurance + the cost of medical benefits + payroll taxes) x eight hours a day x the number of days the person will be paid for sick and vacation time) and / (HoursYear-M14*8) divides it by the total hours in a year minus the number of days the person will not be there.

This provides us with hourly cost of sick leave, vacations and holidays.
Just in case you wanted to know.