Personnel Costs

What is the Definition of Personnel Costs?


In many types of companies, employees are required in order to be able to survive successfully in the market. It is not for nothing that it is often said that employees are the most important asset of a company. But employees also cost money. For this reason, personnel costs arise, which are one of the most important types of costs in the company.

What are staff costs?

Personnel costs are understood to mean all costs that arise from the deployment of employees. The gross wage , which represents wages or salaries, is one of the most important personnel costs. In addition to gross wages, there are also a wide variety of additional personnel costs and other personnel costs. Everything together is then referred to as the umbrella term personnel costs.

How do you differentiate your personnel costs?

As an employer, you have to distinguish between direct and indirect personnel costs.

  • Direct personnel costs are the gross wages of your workers in the form of wages or for your employees in the form of wages. Other direct personnel costs are payments in kind and ancillary payments.
  • Indirect personnel costs are also called ancillary wage costs. By this you have to understand all costs that are in addition to the gross salary paid. These are the employer’s contributions to social security, costs arising from further education or training, costs for work clothing and taxes that are attributable to the total of the gross wage and the number of employees.
Direct staff costs Indirect staff costs
Gross salary or gross wage for the employee Costs for equipping the workplace
Contributions to pension insurance, health insurance, unemployment insurance and long-term care insurance Costs that arise from the recruitment of new employees or costs from employee turnover
Allocations for continued payment of wages Cash benefits such as company car, laptop, telephone, etc.
Dues for professional organizations Office rents, utilities and office supplies
Vacation pay and Christmas bonus
Bonus payments
Costs for training, further education and training
Travel expenses for employees
Voluntary or collective bargaining benefits such as retirement provisions, staff discounts, family benefits, etc.
Continued payment of wages in the event of illness

What are wages?

You pay workers for the work they do . These wages are based on the work actually performed. For this reason, wages can fluctuate from month to month and be different. Wages can vary depending on the industry and the work done can be calculated according to the factors of working hours, piece work or the number of pieces.

What are salaries?

As a rule, employees always receive a salary . These salaries are agreed for a fixed sum. As a rule, you do not pay your employees for overtime, but write these hours to a so-called flextime account . Salaries remain the same in their base salary every month, regardless of whether your employee was working or was on vacation.

What do you have to understand by incidental personnel costs?

By incidental personnel costs you have to understand all the costs that you have to pay as burdens in addition to the gross salary or gross wage. You have to pay because there are both statutory and collective bargaining regulations . The most important ancillary personnel costs are the employer’s contributions to health and pension insurance. These personnel costs you also have on the payroll or payroll show clearly visible. You can see other important ancillary personnel costs, including indirect personnel costs, in the table above.

Declaration of statutory, collective bargaining and company social costs

Social costs are part of the personnel costs that your company incurs. As the name suggests, these costs are incurred for social reasons.

  • Statutory social costs: These are the aforementioned employer’s shares in statutory social insurance, which include pension insurance, unemployment insurance, health insurance, long-term care insurance and statutory accident insurance.
  • Company voluntary social costs: These social costs are based on collective bargaining or company principles and agreements. These can be subsidies for travel expenses, in-house catering, cures, vacation or 13th monthly salary. Services such as company kindergartens or a canteen also fall under this type of social cost.

How can you calculate the personnel costs for your employees?

For you as an entrepreneur it is of course important that you also know how much an employee really costs you. Therefore, you also have to calculate the personnel costs precisely. Above all from the point of view that in most companies it is precisely these personnel costs that represent the greatest cost factor. There are companies, especially in the service sector, where personnel costs can amount to up to 80% of the total costs. For this reason, it is also important for you to know whether employees are really worthwhile for you. In order to calculate the personnel costs of an employee exactly, you have to proceed as follows, taking into account all costs:

  1. Gross wage or gross salary amount
  2. Employer’s contribution to statutory social insurance (this is around 20 percent)
  3. Allocations for continued payment of wages in the event of illness and insolvency
  4. optional Christmas bonus or vacation bonus
  5. Other voluntary social benefits
  6. Continued payment of wages in the event of illness or other absences
  7. Costs for training, further education or training
  8. Traveling expenses

Notice! It is very important that you do not forget the indirect personnel costs in your calculation.

As an example, let’s assume that you have an employee who receives an annual gross wage of 40,000 euros. If you now add all cost items, you have to reckon with personnel costs of around 68,000 euros per year. If you put the costs in relation, you get a factor of 1.7. If you now want to hire a new employee who initially receives 30,000 euros in gross wages per year, this new employee will cost you around 51,000 euros.

This brings us to a simple formula for how you can calculate your personnel costs for each employee.

Gross annual salary x 1.7 0 = actual personnel costs

Personnel Costs