What does an employee cost the employer?

Short answer

How much does an employee cost the employer? More than just their salary. In addition to the gross salary, there are pension contributions, holiday pay, ATP and a range of statutory contributions – and on top of that, the more hidden costs such as the workplace, equipment, training and administration. Taken together, these typically add a significant amount on top of the salary, and when indirect costs are factored in, the total cost can amount to one and a half times the gross salary or more.

Gross pay is just the start

The agreed gross salary is the starting point, but it is far from the whole picture. The question of how much an employee costs cannot, therefore, be answered by looking at the payslip alone. To work out the real cost, you need to add a number of employer-paid items on top. Here are the most important ones.

Pension

The employer’s pension contribution is often the largest single component on top of the salary. The contribution is typically a percentage of the salary and is usually around twice the employee’s own contribution. The specific rate depends on the agreement or collective agreement. Over the course of an entire employment relationship, pension contributions add up to a substantial amount and are, in reality, a significant part of the total remuneration package.

Holiday pay and holiday allowance

Holidays also come at a cost. For hourly-paid staff, you pay holiday pay as a percentage of the salary on which holiday entitlement is based. For salaried staff, holiday pay is included in their salary, but a holiday allowance is paid on top of this. In any case, paid holidays are a real expense that must be factored into the calculations. Please also note that some collective agreements require pension contributions to be calculated on holiday pay as well.

ATP and statutory contributions

You pay the employer’s contribution to ATP – a fixed amount per employee, which depends on the level of employment. In addition, there are a number of smaller, statutory contributions, including to AUB (education), AES (occupational illness), Barsel.dk and the Employees’ Holiday Fund. These are collected collectively each quarter via the Collective Payment scheme, calculated on the basis of your ATP declaration. If this is your very first employee, part of the education contribution is typically exempt.

Statutory occupational injury insurance

As an employer, you must take out statutory workers’ compensation insurance to cover any employee who is injured at work. The cost depends on the sector and the level of risk, and can vary considerably between an office-based role and a physically demanding job. This insurance is a legal requirement from the moment you take on your first employee.

Items specified in the collective agreement

If you are covered by a collective agreement, there will typically be several items: SH payment for hourly-paid staff, payment into a free choice account and paid holiday leave. These vary from collective agreement to collective agreement.

Pay during absence

You also pay when the employee is not at work: sick pay during the employer’s period of liability, any maternity pay, and pay for a child’s sick days and care days. These are expenses that are not included in the agreed salary, but which form part of the actual cost.

The hidden costs

Finally, there are the indirect costs, which are often overlooked: recruitment and training, workplace and IT equipment, software and licences, further training, and time spent on management and payroll administration. They account for a larger share than many people realise. Some of these items occur only once – for example, recruitment and the purchase of equipment – whilst others recur month after month.

Important: AM contributions and A-tax are not your expense

A common misconception is to include A-tax and AM contributions as employer expenses. They are not. Both are deducted from the employee’s own gross salary – you withhold and settle them, but they are the employee’s money, not an additional item on your bill.

We’ll help you get the full picture

When you need to work out how much an employee costs your business, it is the sum of all these items that gives you the full picture. And once you know the true cost, it becomes easier to budget and set prices. At Dansk Løn Service, we keep track of wages, contributions and reporting, so you can always see the full cost – and avoid the hassle. Contact us for a chat.

The figures vary depending on the sector, collective agreement and contract, so the calculation given here is for guidance only. Please seek specific advice if in doubt.