Real Hourly Wage Calculation for Employers

by Jonathan Lister
Labor costs typically go well beyond just the amount of money you pay in wages.


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The real hourly wage for each employee of your small business includes much more than a simple hourly pay rate. Many factors influence what it costs you as a business owner to employ any number of workers, from insurance requirements to tax obligations and benefits packages. Aligning your employees' real hourly wages with productivity helps your company maximize its expenditures and keep steady profits.

Real Hourly Wage Definition

The real hourly wage for your employees is the rate each employee actually costs your small business in addition to each worker's normal hourly wage. For your employees, real hourly wage is the pay each worker takes home minus all applicable deductions, including federal and state taxes and uniform costs. Real hourly wage for you as an employer is a higher number than the hourly rate of each worker; for employees, this figure is lower than the promised hourly rate.

Benefits Package Costs

The benefits you provide your employees, including health insurance, paid time off, retirement plans and sick days, factor into the real wages for each worker. For example, if you pay $100 of each employee's monthly health care premiums, you must add this $100 to each worker's monthly pay to help determine real wages. This is also the case for funds you place in employee retirement accounts each month. Paying health care benefits and matching retirement plan contributions can greatly increase the real wages of each employee versus what employees actually take home.

Time Spent Working

Time employees spend actually engaged in work-related tasks plays a large role in determining real worker wages. As a small business owner with limited finances, what you get out of each worker in terms of productivity helps your business succeed or contributes to drags on its revenue stream. For example, a worker scheduled for eight hours per shift at $10 per hour earns $80 before applicable taxes and fees. If the worker engages in work-related tasks for only six of those hours, this inflates the hourly wage to about $13.33. This could mean a significant drag on your company's revenue, depending on the number of workers your small business employs.

State-Required Insurance

As a business owner, each state usually requires you to obtain worker's compensation insurance, depending on the number of workers you employ on a regular basis. Breaking down the cost of your monthly insurance premium over the total number of workers also adds to the real wage of each employee. It is illegal to pass on the cost of your worker's compensation premium to your employees, so this is a cost you must bear alone as a small business owner.

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