Monday, August 09, 2010

Where the hell is John Galt?

No one knows for sure but the one thing we know is that he's not hiring.

With unemployment just under 10% and companies sitting on their cash, you would think that sooner or later job growth would take off. I think it's going to be later—much later. Here's why.

Meet Sally (not her real name; details changed to preserve privacy). Sally is a terrific employee, and she happens to be the median person in terms of base pay among the 83 people at my little company in New Jersey, where we provide audio systems for use in educational, commercial and industrial settings. She's been with us for over 15 years. She's a high school graduate with some specialized training. She makes $59,000 a year—on paper. In reality, she makes only $44,000 a year because $15,000 is taken from her thanks to various deductions and taxes, all of which form the steep, sad slope between gross and net pay.

Before that money hits her bank, it is reduced by the $2,376 she pays as her share of the medical and dental insurance that my company provides. And then the government takes its due. She pays $126 for state unemployment insurance, $149 for disability insurance and $856 for Medicare. That's the small stuff. New Jersey takes $1,893 in income taxes. The federal government gets $3,661 for Social Security and another $6,250 for income tax withholding. The roughly $13,000 taken from her by various government entities means that some 22% of her gross pay goes to Washington or Trenton. She's lucky she doesn't live in New York City, where the toll would be even higher.

Employing Sally costs plenty too. My company has to write checks for $74,000 so Sally can receive her nominal $59,000 in base pay. Health insurance is a big, added cost: While Sally pays nearly $2,400 for coverage, my company pays the rest—$9,561 for employee/spouse medical and dental. We also provide company-paid life and other insurance premiums amounting to $153. Altogether, company-paid benefits add $9,714 to the cost of employing Sally.

Then the federal and state governments want a little something extra. They take $56 for federal unemployment coverage, $149 for disability insurance, $300 for workers' comp and $505 for state unemployment insurance. Finally, the feds make me pay $856 for Sally's Medicare and $3,661 for her Social Security.

When you add it all up, it costs $74,000 to put $44,000 in Sally's pocket and to give her $12,000 in benefits. Bottom line: Governments impose a 33% surtax on Sally's job each year.


As I've noted before, in the future, the push will be to get overtime out of existing employees over hiring new ones. Even with the overtime surcharge, it will be to a company's advantage to keep lean and mean over the premium of having more employees.

Especially when you consider that so many of these government mandates kick in when companies get to certain employee thresholds 25, 50, 100 employees.

So congratulations. If you have a job, you're likely to have it next year. If you don't. Well, good luck with that one.


More.......


2 comments:

Shakes The Clown said...

Owners of business and the accountants that they employ see the whole picture a hell of a lot better than the average joe. So many taxes are hidden from view.

What a great article.

Anonymous said...

As a headhunter, I see this daily. I am working with a candidate now who was at $29/hour and just hired on with a company. They worked him 90 hours/week for three weeks and refused to reduce his hours, so he ended up quitting. This was in the great state of Texas as well, where they don't have a state income tax. It was cheaper to pay him time and a half ($43.50/hour) instead of hiring on someone else for $29/hour.

-Jeremy