Employee Overhead Cost is an amount of expenses an employer has to bear to provide employees with all necessary tools, equipment and supplies that are defined by the existing work environment. It includes every kind of expenses that are not changeable in the long run and that relate to employees and their working environment.
Organizations need to figure out the amount of money they spend to cover employee overhead cost as this activity allows them to plan for budgets and develop finance management policies. There are two common methods to calculate overhead expenses per worker. These methods are:
- Historical data method. An employer uses data (cost estimates, payroll sheets, paychecks) collected from previous accounting periods to calculate percentage of employee overhead cost for the current accounting period.
- Man-hour estimation method. An employer recovers an actual amount of overhead cost through estimating the number of man-hours consumed on an hourly, daily or monthly basis.
Here are some examples of employee overhead expenses:
- Cost of employee benefits
- Payroll taxes
- Unemployment insurance premiums
- Actual costs of hardware, office supplies, coffee and cookies that are in use of employees
- Maintenance and cleaning of building in which employees work.