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Factors That Influence Payroll Costs

Depending on your business, payroll costs can vary greatly. Here are some factors to keep in mind when comparing payroll providers. These factors include Variable labor costs, Location, Size, and Payroll method. Payroll providers can also offer additional employee benefits, such as medical, dental, and vision insurance. Workers’ comp and health insurance costs are significant for small businesses. You should also pay attention to fees associated with adding and dropping employees.

Influence Payroll Costs

Variable labor costs

Payroll costs can be broken down into fixed and variable labor costs. Fixed labor costs are the costs that don’t vary with production. They include salaries, commissions, bonuses, and temporary staffing. Variable labor costs, on the other hand, vary with production demands and economic conditions. These costs include salaries and commissions for office staff, who may not need to work overtime.

Variable labor costs include the costs of additional employees on the schedule based on a company’s forecasted demand. For example, a business should determine how much-fixed labor costs it will take to open the doors on its slowest day and how much variable labor costs will affect sales volume. Alternatively, businesses can use online employee scheduling software to plan their shifts to save on overall labor costs.

Variable labor costs are essential to understand because they vary with production. These costs are difficult to forecast. Hourly workers are often part of this category because their pay depends on their hours. In addition, they may be paid overtime. Also, workers performing case-by-case duties are variable.

Size of business

The size of your business influences payroll costs and different types of businesses fall into different sizes. The size classifications are based on factors such as the number of employees and annual revenue. Understanding which category you fall into can help you determine which technology solutions are most appropriate for your company.


The labor cost is a significant factor in determining your payroll costs, but location can also have an impact. According to a survey, 4.3 percent of companies would reduce cash compensation for employees working from remote locations, while 56.5 percent would not reduce cash compensation. The rest are unsure or would decide on a case-by-case basis. As a result, companies are increasingly adopting geographical pay policies.

While the cost of moving employees isn’t huge, it negatively affects productivity and retention. Good location decisions can boost a company’s long-term performance. However, bad decisions can cost millions of dollars in lost talent, productivity, and capital. In other words, a terrible location decision can affect a company for decades.

Payroll method

When selecting a payroll service, it’s essential to know how much it costs. Payroll outsourcing solutions differ from one another in that they have different fee structures. Some providers include ancillary services like insurance and benefits, but others charge extra. You should be aware of these costs since these services can quickly add up compared to basic payroll processing.

Another essential factor to consider is the size of your workforce. If your workforce is small and you don’t have an in-house payroll department, you can save a lot by using an outsourced service. Small businesses often find it challenging to keep up with payroll, so they may consider outsourcing this part of their payroll.

Payroll taxes are another ordinary expense. Even small businesses are required to pay payroll taxes on their employees’ wages. These taxes are a vital component of a payroll budget. These taxes include federal and state unemployment insurance premiums, Social Security and Medicare taxes, and local or state payroll taxes. Payroll taxes can vary year-to-year, so checking the rates yearly is essential.

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