Employee Compensation

Ever look at the breakdown of employer costs for employee compensation? It is actually quite fascinating. According to today’s BLS release, for June 2004:

· Employer costs for employee compensation averaged $24.96 per hour worked;
· Wages and salaries, which averaged $17.70, accounting for 70.9% of costs;
· Benefits, averaging $7.26, accounted for the remaining 29.1%;
· Costs for *legally required benefits averaged $2.03 per hour 8.1%
&nbsp&nbsp&nbsp(Note that represents the largest non-wage employer cost).
· Life, health, and disability insurance benefits averaged $1.93 (7.7%);
· Paid leave **benefits was $1.66 (6.6%);
· Retirement and savings benefits averaged $1.01 (4.1%).

All of the above is “per hour worked”

*Social Security, Medicare, unemployment insurance, and workers’ compensation

**vacations, holidays, sick leave and other leave

National Compensation Survey – Compensation Cost Trends

Private industry

In June 2004, private industry employer compensation costs averaged
$23.41 per hour worked. Wages and salaries averaged $16.71 per hour (71.4
percent), while benefits averaged $6.69 (28.6 percent). Employer costs for
paid leave averaged $1.49 per hour worked (6.4 percent), supplemental pay
averaged 64 cents (2.7 percent), insurance benefits averaged $1.66 (7.1
percent), retirement and savings averaged 82 cents (3.5 percent), and
legally required benefits $2.04 (8.7 percent) per hour worked. (See table

NOTE: The Employer Costs for Employee Compensation program converted to
the 2002 North American Industry Classification System (NAICS) and the 2000
Standard Occupational Classification System (SOC) with the release of March
2004 estimates. Several publications have been prepared to provide
information on the transition to NAICS and SOC. See page 24 for details.

Retirement and savings benefit costs in private industry

In June 2004, average costs in private industry for retirement and
savings benefits were 82 cents per hour worked, or 3.5 percent of total
compensation. The average cost per hour worked for defined benefit plans,
retirement plans that specify a benefit typically based on age, years of
service, and earnings, was 40 cents (1.7 percent of total compensation).
The average cost of defined contribution plans, retirement plans usually
based on employer contributions to individual employee accounts, was 42
cents per hour worked (1.8 percent of total compensation).

Among occupational groups, retirement and savings costs ranged from 18
cents per hour worked for service occupations to $1.53 for management,
professional, and related occupations. Sales and office occupations
averaged 52 cents; production, transportation, and material moving
occupations, 88 cents; and natural resources, construction, and maintenance
occupations, $1.27 per hour. The proportion of total compensation
represented by retirement and savings ranged from 1.5 percent for service
workers to 4.8 percent for natural resources, construction, and maintenance
workers. (See table 5.)

Retirement and savings costs were higher, both in amount and as a
proportion of total compensation for union workers ($2.27 and 7.1 percent
of total compensation) than for nonunion workers (65 cents and 2.9 percent
of total compensation). Defined benefit plan costs were significantly
higher for union workers ($1.77 and 5.5 percent of compensation) than for
nonunion workers (24 cents and 1.1 percent of compensation). (See table

Retirement and savings costs were higher in goods-producing industries
($1.38 and 5.0 percent of total compensation) than in service-providing
industries (68 cents and 3.1 percent of total compensation) per hour.
Within goods-producing industries, construction averaged $1.31 per hour and
manufacturing, $1.41. Costs in service-providing industries varied widely,
ranging from 10 cents in leisure and hospitality to $1.40 in financial
activities. (See table 6.)

Among the four regions, retirement and savings costs ranged from 66
cents per hour in the South to 97 cents in the Northeast. Retirement and
savings costs were 92 cents in the Midwest and 84 cents in the West.
Within the nine census divisions, retirement and savings costs ranged from
61 cents in the East South Central division to $1.02 in the Middle Atlantic
division. (See table 7.)

Retirement and savings costs increased, both in average dollar amount
per hour worked and as a proportion of total compensation, with
establishment size. Establishments with fewer than 50 workers averaged 44
cents (2.2 percent), significantly less than establishments with 500
workers or more, $1.82 (5.5 percent).

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What's been said:

Discussions found on the web:
  1. Outside The Beltway commented on Sep 15

    Employee Compensation

    Barry Ritholz, citing a June Bureau of Labor Statistics report, breaks down the employer cost per employee hour worked:

  2. Jack Scott commented on Sep 16

    Even more interesting than the breakdown you highlight today would be to see
    the same for a variety of countries including the BRICs (Brazil, Russia,
    India, China). I seem to recall reading in the journal a few months ago
    that India’s per hour employer cost for employee comp was approximately
    $6.00. Kind of makes you want to buy the stock of those corporations that
    outsourcing most aggressively.

  3. Barry Ritholtz commented on Sep 16

    Yes and No — depends on the business.

    Take Software for example:

    India’s programmer’s require more supervision, take longer to complete work, and use more code to accomplish a given goal than US programmers. Domestic software work has been described as “tighter, cleaner less bugg, more elegant” than the outsourced work.

    So the US programming is superior — but I doubt its $75k better — and thats the salary diff between here and there.

    I expect the global arbitrage in salaries to continue — outsourced industries will see salaries rises in overseas, while they come down here . . .

  4. paras commented on Sep 26

    does the hourly employee compensation costs include the costs for managing the benefits?

  5. gleb commented on May 17

    im doing a living costs / compensation survey on China. Most Chinese gov sites offer some basic info: cpi, rpi, basket of goods etc on the country in general and sometimes on cities specifically. Hr firms give better info but price their reports anywhere from 350 to 3500 USD. Can anyone post or email me some (reliable) info or links concerning wages / living costs in south – east China?

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