How to Know the True Cost of Employees – Ask Clay Anything

Show Notes

What does it truly cost to hire an employee? During this episode Paul Hood and Clay Clark the guys break down the true and hidden costs involved in hiring real employees in America during this time in history on the planet Earth.

NOTABLE QUOTABLE – “It typically costs YOU two times more than you think it costs to pay your employees.” – Clay Clark

Hidden Employment Costs:

  1. Workman’s compensation insurance
  2. Theft at work
  3. Time theft at work
  4. Social security
  5. Medicare
  6. Refunds
  7. Janitorial
  8. Breakage
  9. Using office supplies
  10. Team training
  11. Overtime
  12. Double-staffing
  13. Employee vehicle insurance
Business Coach | Ask Clay & Z Anything

Audio Transcription

Thrive nation do you have employees? Do you have visions of someday having employees? Do you have a team of people that you pay? Eventually you’re going to have to move beyond the game of having contractors and the game of hiring friends and family and paying them cash under the table, which is not legal. You’re going to have to actually hire employees. And when you do hire employees, the cost of hiring employees is significantly higher than most people think it is. That’s why on today’s show I’m bringing on CPA certified public accountant to Mr Paul Hood, uh, with me. So we’re gonna really get into the weeds really into the details and all the hidden costs related to hiring employees. How much does it actually cost? How much does it truly cost to hire an employee? What is the true cost of hiring an employee today in America? Now Paul, this is a subject that I’m very passionate about because as the former us spa entrepreneur of the year as an owner of multiple companies, I deal with this a lot and I am very aware of the cost of employees, but nobody else seems to be so I’m gonna make a statement that I make at business conferences and I would like for you to wrestle with it.

You can disagree with me on it. I just want to get your take on this or shoot me. Hit me. If I hire an employee for $10 per hour, it will actually cost me $20 per hour.

Wow. Do you agree with that? Do you agree? Hang on. I to pull out all my old accounting books from college. I don’t think that’s in there. Clay, you know, I went through five years of college and nobody ever taught me that. So, and, and I, this is where my business conferences justification comes from and you tell me if I’m, if I’m off here when I hire someone for $10 an hour and I’ll just give example a about my call center right now, and think about the call center just had this conversation yesterday with a young man who were helping. He says, well, I’d like to hire your team to make calls. What does it cost? And I said, my cost is $20 an hour. He says, but you only pay them 10 an hour. I said, well, let me explain to you the layers. My friend one, they make $10 an hour to I have to pay taxes.

Paul, what taxes do I have to pay as an employer out of an addition to paying these people? What taxes do I have to? Yeah, you have to match their social security, their fica. You have to match. How much is that? That is says six point two percent. So I have to pay. It’s again six percent the Medicare. Yep. One point four, one point four five. So I’m up to how much between those two rough be seven. One, seven, six, five. Okay. So it’d be 10, $10 an hour, now it’s seven percent more. So it’s a kitten. It’s Kinda $10 and seventy cents an hour. Now I have to put them in an office. Now I’ve thought about officing. I’m in an abandoned, bombed out building in Bay root. I’ve thought about it. I’ve thought about often officing in Ecuador. Um, there’s some, there’s some box communities.

They’re, they’re made out of boxes or cardboard communities. I’ve thought about officing in the floating alleged island of trash in the ocean. I’ve thought about that. I’m like, guys, there’s tons of styrofoam cups. Just keep drinking. Styrofoam cups will throw that into the ocean and we can live there. I’ve thought about that, but no. Then the employees drink coffee. The employees have cups. Yup. Being employees typically go to the restroom and I thought about we’ll just get rid of the toilet paper. Let’s save money. They can still go there. They just can’t have toilet paper. And I thought, no, it’s a bad idea. Those bathrooms will be sick. And I got to pay someone to clean the bathrooms that the employees use and the office of the office we have for thrive, the building size is $27,000 a month. All in. That’s the cost for the office and the air conditioning and the plumbing and the janitorial services and the coffee.

It’s $27,000 a month. So when you divide that by the number of employees we have, long story short, it comes out to $20 per hour to pay somebody $10 an hour. Right? I think people think about that. No, you have worker’s comp insurance. You have to be negative. Yeah. You know, all that kind of thing you’ve got, you know, and what a lot of people don’t, businesses don’t understand is all of the, the hidden costs, the cost of the wasted time, you know, the, the, uh, um, the six hours where the work you get out of an eight hour a day because they’re there for, they’re fitting their work into their day real quick with, you just said something this big. Again, according to the US Chamber of Commerce and CBS, they agree with Paul. Seventy five percent of employees steal tangible goods from the workplace. Also, according to Forbes, for the first time in American history, well over 40 percent of American workers now admit to wasting significant portions of their day at work not working.

So you’re wasting time. Yup. You’re stealing goods. Uh, you’re paying worker’s comp and this week I have a fun one. I have a fun. I have a fun one for you, Paul. This is another hidden cost. Alright. Young lady who worked with us for a long time and when one of my companies and she decided to quit, she said I’m going to be taking a new job and my boyfriend and I are moving to a new city and we’re gonna be taking a new job. And I thought this is great. Says I’m resigning. I said, great. And I got a letter on Friday. Do you know what that letter the letter from the unemployment commission. Do you know what that letter was about there? She’s filing for unemployment, right? Right. But she resigned. She said, I don’t think that’s how it works. There’s actually a guy who is fun guy.

I knew this guy from oral Roberts University. He resigned from our business to become a stuffy, wanted to start his own multilevel company. Right. He resigned. He said, I’m gonna. Start my multilevel business. I’m going to join in. I’m going to be an agent or representative, whatever. He resigned. Well, it turns out multilevel businesses with the multi-level business conferences typically don’t go very well. Very long term, you know, so he’s at the mall pitching products, trying to sell stuff. He calls everyone he knows from Church and Paul Revere and pitch from a good mlm. I mean, a really solid pitch. Have you ever had the ambush? Absolutely. Many times. Sean, have you ever been pitched from a good mlm? We’ve ever been. Really. What was the last time that you were? Pat, don’t give us. We don’t have anyone in trouble here. Just give us kind of the tapestry, the story. What was the last time that you had a really strong multilevel pitch headed your way? Uh, there was a,

a man who visited our old office building and he came in with a machine. This machine was meant to like it. It processes your water and then like adds minerals. So it’s a water machine hearing about all kinds of toxins and bought bottled water and charities. The extra uses that this machine could have in terms of you don’t even have to use detergent anymore. It’s the Ph balance of the water, the Ph balance. Ph is the issue. Create an environment where cancer cannot live just there’s so much you can reuse your bath water to drink in the machine and stopped by the end. I was like, yeah, okay. If I use the machine then you’re going out. You’re not going to get cancer. No, never need to buy anything to wash your clothes again. Right. Save money on attorney healthy. It’s good for your skin. Yeah, you’ll probably right. Okay. How much was this machine, this machine? Did you almost buy it? I thought

yes. So here’s what I’m saying. So this guy goes out there and tries to sell the world. Is multilevel product, right? Yeah. It doesn’t go well. He files unemployment against me and he says, because he was discriminated against because he was an environment where he was the only Hispanic he could not get promoted. Now what? What makes me will be, make sure we get this. His direct boss was an African American and on his own team there were two Hispanics at the time in the call center, but he resigned and so even though I ended up winning and I didn’t have to pay him, I had to pay my attorney. Now I use West Carter with winters and King West Carter. For our listeners out there, if you’re not sure who wes Carter is, he represents Joel Olsteen, td Jakes, td Jakes, Joel Olsteen, Joyce Meyers, Craig Rochelle. This same guy that we have on the thrive time show once a week represents these people and I tricked him into representing me every single time I interact with west. Do you want to guess how much money I pay? Wessel week you and I guess I’m. I’m afraid to clay just.

Oh, let’s say $100 a week.

Yeah, right now we’re at 1200 a week. That’s my advice.

That’s just because you liking team and I have extra money laying around.

Well, it’s just like the elephant in the room. I have a leak every time someone files an employment, I want him to look over it and to think about does this situation make sense? Because if somebody is like wanting unemployment, I’m not going to sit there and fight you over it. I’d rather just let you have it, whatever. Fine. But if somebody is claiming that they weren’t promoted because they’re Hispanic, that’s a bad thing and we need to deal with that. We need to figure out if someone’s saying things on facebook that aren’t true, that slanders, you know, should we deal with it? All I’m saying is these are all costs. Paul, what’s another cost that goes in to an employee? I mean there’s so many people don’t think about these costs. You said Workman’s comp. What does, what does Workman’s comp costs? Paul?

Well, it depends on what type of business we’re in like for us it is business coaching and business conferences, but it could be, you know, three to 10 percent. It’s outrageous. You know, if you, if you’re in the construction business or if you’re versus an office employee, now, one of the worst ones, one of the hardest ones to quantify clay is, is the effect of a seed level. A bad attitude has on the rest of your team at drags everybody down. If it makes people, it makes your, a players not want to show up for work. Um, when you’ve got somebody in there and, and, and it also, if you don’t, if you’ve got, if you’ve got a bad employee that’s not doing their work then, than it taints other people that were doing their work. So it could be catastrophic to, to keep bad employees and their claims

play. I’ve got, I’ve got more refunds. [inaudible] yeah. This just happened to be this week. I lost, lost, lost clients this week in particular. I had a major refund, a major refund where somebody claims we have to record the call and it happened. So they had to take care of them. They called it and said, would you please cancel my member membership for elephant the room? And one of our employees had. Absolutely. And our team does a fine job they do, but in this case they didn’t cancel it. So the guy got charged for like, you know, seven consecutive months I listened to the call, even if I couldn’t hear the call, I’m gonna always take the customer side when it comes to refunds, always treat the customers right. And uh, Sweden refund the guy, I think it was, um, like 400 something dollars, almost $400 and that usually happens once a week where somebody will want to refund, which is fine.

It just. But again, I had to pay the people who sold the commission, the commission when you sell them and sell a membership. And I had to refund so I had to pay for the commission and the refund. So it was like a double negative. Other other things? Um, again, we mentioned janitorial service. What about breakage, Paul? Yeah, breakage, breakage. This is a big thing I know for our photography company, Andrew, who’s observing today’s show for epic photography. I mean, Andrew don’t know if you ever saw that, but people breaking lenses and equipment, I mean a camera lens. A Good Tamar on Lynn’s is, are they the $1,500 ish, $600 for a hammer on lens. And I remember one guy, he’s going, well, uh, whenever I have a Paris, I love Paris, I love the Batman Pez dispensers, the Kenyan, and typically if I try to dispense myself appears and it’s, and it’s, you know, it comes out wrong.

I just throw it on the ground because it’s a pet, you know, and I view camera lens is the same way. If I don’t like the Lens, I throw it out. I mean this guy, not kidding, this guy mowed through profit. Not Kidding. It was. He does great work. This guy here, you my, if you were going to name a river, you know, there’s like the Tigris and Euphrates. There’s the Jordan River. I’ll just say this guys named after a river and he used to just break lenses all the time. Paul, is there any other hidden costs you can think of where you go,

gosh, that’s. I can, you know, here’s, here’s a good one. I have, I’ve had caught employees bringing their bills to work and paint them. One, they’re using my time to pay their bills. They use my envelopes and then they use my postage.

Oh, so that’s kind of a cost that you, they just think, Eh, you know, the postage machine, it just refills itself. No, that comes out of my business conferences pocket. So employees are done, that kind of stuff all the time. I provide drinks at my office for my employees, you know, and, and it kind of bothers me. It at 4:55 as they’re walking out the door that grab another drink and I didn’t give you drinks to take home, drink them at my office, you know, whatever. But there’s, it’s, it’s unlimited. That’s why it’s at least double what you normally pay them.

So again, I would just say this, if you’re out there, you don’t, you don’t remember anything else about today’s show, write this down. Think about this. It typically costs you who you are. If you’re an owner, tilly costs you two times more than you think it costs you to pay your employees. I’ve got another cost, Jason Elephant in the room every week. Have you noticed that? We do team training, yes. How many people do you think we’re at the last team? I’m not asking for a specific number. How many people approximately were at the last team training? About 33 and what is the purpose of the team training? Just provide weekly benefits to the team, train them up on anything that they are lacking in, but also that a, it also provides a closer relationship with you to them. I mean we have. It’s it’s motivation, it’s skilled training and accountability.

We do it every week and just so we’re clear, that meeting costs us a thousand dollars every meeting and we do four point three of those a month and we do a management meeting that costs me $400 a week and we do four point three of those months, so training and thrive nation. If you’re out there and you’re saying hood nation, you’re saying, listen, I’m out there and I’m listening to this show. What do I do with this? What do I. Well, one is whatever you’re paying your people. Just recognize it costs you two times more than you think it costs you to pay your employees and accident number two is go to hood CPAS Dotcom today. Go to [inaudible] dot com today and schedule a free one hour consultation, scheduled a consultation. You’re going to have a conversation about what you, your company, your growth and proactive accounting. You don’t want to be reactive. You want to. If you’re getting to the end of the month and you’re saying, I don’t know where my money went, that’s not productivity. You want to be proactive telling your money where to go. So Paul, who’s going to give you a free copy of Warren Buffett’s only authorized biography, snowball and one hour of his team’s time. All you got to do is schedule your free consultation today at Hood Cpas Dot Com.

See, I’m more than just a aroma like a horse with blinders in Egypt, business skills from because we both grew up poor no more. The goal with this show is to help you stay until my son, schools like yo Dj numb to the pain and rejection

are so. They’re so excited about their idea, their product, their New Vision for a better tomorrow, but they don’t think about the costs. They don’t think about their accounting. And accounting is simply knowing where your money’s going. You’re taking a count, you’re, you’re, uh, you’re holding your money accountable. You’re saying this is where it’s going. This is where it went. Paul, why do most people not know the true costs of employees?

Well, most people don’t know the true cost of everything. They don’t, they don’t sit down. I had a client just the other day that the seemingly, um, you know, they, the way they talk, they knew their numbers, but then when, when we had them go through the exercise of just scheduling everything out on an excel spreadsheet instead of using quickbooks or some, they were mad. They said, oh my gosh, we got more work to do. We did not know. And, and so they, you need to know the cost of what you’re doing right now and what it’s gonna cost you to expand. And employees unfortunately is one of the major costs. And so when you’re forecasting, when you’re projecting, when you’re being proactive and looking forward and saying, hey, we want to expand at this office, we want to do this, we want to do that. You have to. You have to have the real numbers to know what it’s going to cost you to expand. Or if you’re wanting to retract, you know, what are you going to save if you retract, so you’ve to be able to plan and look forward and be proactive. You’ve got to know these costs. Clay,

here are the hidden costs. And then I want Shawn, the business coach here to ask you any tough questions or he could really get into your mind. Here’s what the hidden costs. These are hidden somewhere within your bowels who down there to janitorial closet. There’s a hidden door you put on there to the dungeon crying in pain cost over us. And this is where you find these hidden expenses, Workman’s compensation out theft, okay? To the Dutch term, time theft at social security. You see in the castle there, the monks are singing, but down here in the dungeon at naked naked, there’s crying and there’s endless pain and there’s expenses that you don’t expect. Rip His arms down here in the accounting dungeon. I’m just up upstairs. You see the monks there having a good time. You’re maintaining homeostasis. They’re finding center oneness there a team, they’re working together to handwrite the Bible with calligraphy. Meanwhile, down here in the business. Dungeon of hidden expenses with a spoon, but why?

Because it. It’s crazy. Down here, there’s reflux, there’s Medicare, there’s social security, there’s breakage. Au pair professionals to bring things using office supplies. Probably shouldn’t feel good and make them copy employee. Years ago, actually a photocopy of this while sitting on my copier, but an average size but broke the copies and the break the copier this week also for two weeks ago and employee broke a frame while going up the stairs and then they broke another frame and the conference room, he didn’t tell me about it because they’re classy. Then you have team training. Overtime. Camera system monitors the people that must be watched it on times, business dungeon, and you have double staffing. This is a fun. I recently heard a record the call and one of our employees talk to someone else and said, hey, I’ll try to get you some more hours to the cost, and so the person was devastated. We didn’t meet them and they said, we’ll hook you up, and I heard him on the phone so we don’t really need anybody would come on and I’ll get you to external source. And so they hit that 42nd. No, no, they didn’t hit the 38, the 47 Paul, which means devil time. Over time. Triple time means that in the business dungeon where there’s endless crying. People can’t pay their bills.

Paul. It’s a bad thing. The business, no one talks about the business stuff. No one wants to come down here. It says gross. No, let’s talk about all the rainbows and Unicorns and. But you know you. If you don’t control your costs, clay, there are no unicorns and rainbows. It’s all storms and bad weather. So I took out down to the business than genetic, or we can sit down. Then I own excrement and watch people get that arms ripped off. That’s exciting. I mean no one wants to get down there. It’s medieval down there. No one wants to get deep into the numbers. I have the, you know, the pie in the sky. But Dude, you got to control the money going out. It’s a whole lot easier to make a profit that 20 to 30 percent bottom line, if you control your costs and you’ve got to know your costs to be able to control and play. Now, Sean, you’re a business coach. We’d gone down into the labyrinth, into the, you know, into the bowels, into the, beyond the janitorial closet, deep into the dungeon of business. We’ve talked about hidden expenses. What observations or questions do you have for Mr Paul Hood?

We have a client out in Pampa, Texas and they, uh, had just done this exact activity of looking into their expenses and then they evaluated their and what they were paying them for the first time in a long time. Ended up getting rid of two employees to save $2,000 a week. That translated to a lot over a year for them. So that was huge, I guess is that. That was the first time I’d seen that. But is that common?

Yeah, and it’s very common. It’s, it’s, there is so much waste going on in businesses today, you know, and it can be small things, it can be large things, but like we’ve been talking about here, one of the major expenses customers are businesses have is their employees, but they don’t understand the magnitude and the ripple effect of getting read. If you have a players you should, you should promote pullman edified them.

Paul, did you say nipple or ripple?

Uh, I said rip minute there thought that you said the nipple effect. And I thought that show real need to explain nipple of. Hey, that sounds like a good title. A ripple effect play. Come on. I’m sorry. I just, I guess as a business talking about diamond cutting, what are we talking about? Up Piercing? This show really took a weird turn. We’ve been so professional. And so last, I thought, Paul, welcome to the dive bar. That’s awesome. Okay, I have another question.

No Sir, I don’t see this listed on the cost here, but we ask all of our new clients will, we’re onboarding them. How proactive is your accounting? And one of the questions we asked them kind of in that section is do they set aside enough money for taxes? So when you’re looking at employees through the lens of taxes, it turns out you pay taxes on your employees as well

to match you withhold federal withholding, federal, state social security, medicare taxes, and you have to match the Fica and the Medicare tax. So for every employee it costs you an extra over $70.

And I view it as a tax. I know it’s not going to the government, but mandated by government, workman’s comp is crazy. Now let me take a workman’s comp works. This is exciting. They’ll call us and go boop, boop. And I said, this is clay. Like, hey man, what’s going on? This is how the, this is how the call every time, what’s going on? Great. I hear elephant in the room is growing and it is, and they say, how much is the payroll per week now and no matter what number I tell them that I going to be honest with them. I get a retroactive bill from the past because it’s a percentage of your total expenses. Paul. Workman’s comp is a percentage of your total payroll. Can you kind of explain roughly how Workman’s comp works? So no one. No, I don’t. I do not know people who are entrepreneurs who are saving money for Workman’s comp unless you’re super successful and most people just never met. Paul talked about that cost.

Yeah, it’s crazy clay. I mean we actually. We will have a client come in and get involved in areas of their business. We don’t even offer the service. We’re going to look at how much they paint in car insurance and home insurance, how much they pay in business. Insurance and Workman’s comp is a big one and you can actually. There’s. There’s the problem is there’s a limited amount of companies that offer that and you’re at their mercy. Just like most government entities, you’re at their mercy, they can come in and classify your employees as a high risk and and really they’re not as far as their job titles and so it can be very, very expensive. And what people don’t understand is if your business is expanding and your payroll is growing and then all of a sudden you’re paying workman’s comp, it’s a fixed, you know, it can be a fixed cost, but then as you, as you add business conferences employees, they’re going to go back and hit you retroactively for the. It’s Kinda like having insurance on your car and then all of a sudden they say, oh, well you had a ticket since you had a ticket. We’re going to go back and increase your retroactive. That’s one of the few costs. And you can’t argue it.

I don’t know, a lot of modern day vikings, you know, guys that run around with axes and swords, but if I were to be it, I view workman’s comp is kind of like being raped and pillaged, but at least they say thank you.

Yeah, they’re, they’re very nice people. They come in and do audits and they’re saying we’ve, but here, here’s your bill, but that you can, you can. There is a, a, an avenue of being competitive in that and we just. I’ll give you an example. We just had a client that that’s a mutual client of ours come in and we gave them a bid and we had sent it out to people. Again, we don’t even make money on this. We sent it out to a couple of people on Workman’s comp and we’re saving them five grand a year.

Jason, what’s another hidden costs? Do you see the elephant? The room, and I had an expense. One that I’ve had to experience in the past two weeks is breakage. Oh, breakage. What kind of stuff? We break it, uh, only. Only the most expensive stuff. A full full barber chairs. I’m just armadas of clippers and trimmers, but you’re such a neck. Okay. I’ll tell you what. Hood nation, if you want to get proactive about your accounting, go to hood CPAS.com and schedule your consultation. You get a free copy of Warren Buffett’s only authorized book, snowball and a free consultation. Get it today at hood Cpas Dot Com. That’s hood. See p three.

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