One good thing to come out of the pandemic may have been your immersive education in Gusto reports. You dived in to help clients calculate all things PPP loans and are likely still using Gusto reports to help clients apply for PPP forgiveness. When the dust settles on these exceptional circumstances, don’t let your newfound knowledge of Gusto’s reporting features go to waste. The next time the unexpected happens, be the resource your client cannot survive without, not something your client eliminates to survive.
The available reporting in Gusto offers firms excellent opportunities to engage with clients on various topics. If used to its full potential, the data at hand can help firms expand relationships and retain clients by opening the door to new advising opportunities. In this article, learn how to utilize the Gusto platform to have productive conversations with your clients and help them understand workforce costs. Discuss topics ranging from budgeting for staffing costs to understanding the actual cost of payroll.
Revenue stream: Budgets and forecasts
Labor makes up a high percentage of income, so accurately estimating it is foundational to any forecast. To get the estimate right, you have to factor in gross wages and employer payroll taxes.
To get the data you need, open up a Team Member record in Gusto and click to edit compensation. At the bottom of this pop-up window, the system reports the actual employer cost of payroll. If including salary increases in your budget, edit the wage field and watch the employer’s cost numbers update in real-time. The system presents both an annual and per pay period figure making it easy to figure out the cost for any budget period.
The system calculation defaults to one full-time equivalent (FTE). If you have part-time employees, edit the default hours field on the Team Member profile before running the numbers.
The importance of COGS
Once you have the data for all employees, you can be confident the numbers you plug for labor in your budget or forecast will be accurate. In your projections, separate the employees into two groups: income producers and general admin or sales staff. The latter group should be included below the gross profit line. Even service businesses should present a separate cost of labor.
This effort can be especially beneficial for businesses that experience seasonal income sources. Many of these businesses may reduce hourly staffing in their off-season but need help figuring out how to pay for salaried staff year-round. This conversation begins with determining the amount of funding required for payroll. From there, your services may be needed to discuss and help obtain lines of credit. Alternatively, you could model additional revenue options or how to trim non-personnel costs.
Revenue stream: Advising
Can I afford another new employee? What should their hourly billing rate be? These are just two of the questions you can help your clients answer by delving deeper into Gusto’s reporting. These questions require you to know the actual cost of an employee.
Adding Up the Costs
This time actual cost is defined more broadly than just gross wages and payroll taxes. To get a complete picture, you have to add any employer 401(K) match, employer health insurance contributions, and mobile phone allowances. These items can be displayed broken out in detail on the Payroll Journal Report, which you can conveniently download as a CSV file.
Additional items to consider include workers’ compensation insurance, the cost of computers and equipment provided to new hires, and any training. Include overhead items like utilities too. Divide them by a company’s total headcount to figure out overhead on a per-employee basis.
Cost per hour
Total all these costs, then divide by the hours an employee will be bringing in revenue for the company. For example, while full-time salaried workers get paid for 2,080 hours, calculated at 40 hours for 52 weeks, they may only have 1,920 productive hours owing to PTO and holidays. Dividing the actual cost you calculated by this smaller number of hours will drive up an employee’s cost to an employer. The idea being, the less an employee works, the more expensive they are to the company.
|Employer 401(k) match||$2,550|
|Employer benefit contribution||$3,900|
|Overhead per employee||$1,800|
|Employee hours worked||1,920|
|Actual cost of employee, per hour||$52.10|
Now you have the actual cost of an employee per hour. The actual cost figure can help clients calculate “out of staff time” or the costs of training and onboarding a new hire before they become a revenue producer.
If you divide the actual cost per hour by an employee’s hourly rate, you get a multiplier, often called the burden rate. At this point, you’ve helped your client determine just how much to charge to break even on their employee’s time.
|Actual cost of employee, per hour||$52.10|
|Employee hourly wage||$30.00|
Do more than breakeven
From here, you can help your client build in profit or how much markup the company can garner per hour. This will, of course, vary based on geographic location and what the market can bear. Still, a mathematical starting point looks like this. Take the multiplier you’ve already found and add on a percentage of desired gross profit.
|Burden rate + profit||$2.26|
Completing these calculations isn’t a one time effort. As rent and insurance rates creep up annually, you’ll want to revisit these numbers with your client to ensure they have the most updated information.
While new clients may be hard to reach during periods of economic uncertainty, there are plenty of ways to draw on that uncertainty and expand existing relationships. Use the available reporting provided in all tiers of Gusto accounts to help clients cover their costs, pad their bottom line, and plan for their future.