Salaries Accounting
Hey guys, this is an addition to my question the other day. I am still stumped on this. I am creating a fictitious start-up company that would be a subsidiary of an already existing big-box retailer. I need to estimate the total cost of all employees in this new distribution center I am making, but I am coming up with crazy high numbers.
The facility needs 700 employees, and I calculated the average hourly wage to be 13 per hour. Not sure if that is high, but my end-of-year expense for salaries and wages for these 700 employees comes out to be $30 million. That is way too high right? I am not sure what else to do because in theory, it should make sense. $13 per hr, the average employee works 9 hours a day, 6 days a week and 50 weeks per year. Even if I shorten that to 5 days a week and 46 weeks per year, it is still crazy high. For a distribution center less than 1,000 employees, it just seems high.
How do you guys usually estimate these costs?
I didnt see your other post, so I don't have context.
I'll give you one hint though........there's a reason Costa Rica is so popular for employers (actually there are a few, but one is very pertinent to your issue).
I actually meant salary expense. Salaries in Latin America are ridiculously low (although there are some trade offs).
This is just a paper exercise right? You're not actually starting this real business, right?
First, your method is rudimentary but adequately sound. However, your estimates are a little high. $13 should probably be closer to $12. Also, 5 days a week and 8 hours a day should probably be standard, even with salaried employees, since additional hours from them are effectively free.
$12/hr, 40 hrs/wk, 50 wk/yr gives you about $24k per year per employee, or $16.8m total. This is a lot better than $30m that you initially quoted.
Second, 700 is a fair amount of employees. According to a very fast cnn.money.com search, the general merchandising industry averages about $200k in revenue per employee. If that's even close to the case for your subsidiary, then the $24k is totally reasonable. Payroll expense is typically around 20% of gross revenue in retail, so the 12% you're looking at with the hypothetical numbers isn't as bad as you think. Even the initial $30m you were looking at isn't as bad as it sounds considering 700 employees generating $200k each gives you $140m in revenues annually.
DISCLAIMER: I speak from a logical instead of technical point of view. I don't actually know any specific payroll valuation or estimation techniques.
Just thinking here, because we were not planning on hiring new employees each year, so in that case, growing out payroll expense wont make much sense
I think the payroll expense 20% of revenues is a rule of thumb. But cost of living raises, bonuses, and regular attrition might cause slight increases in payroll expense year over year. However, if you are confidant that payroll expense will remain relatively constant, then you should build that into your model.
However, there is a cost to increase sales, and 9% increase year over year is pretty decent growth. Often, payroll expense has to rise to keep up with increasing sales because either you get understaffed or you have to compensate your stars salespeople. So building out an increasing payroll expense is probably the conservative thing to do.
Yeah it is something I am doing on the side, it is not real so I am not worried about true accuracy.
Change your username (again). You are fucking up the forum view.
Love this guy.
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