Four commonly used methods for Costing Benefits: (according to R.

Henderson, 2003)
1. Annual Cost of benefits and services for all employees
2. Cost per employee per year
3. Percentage payroll (annual cost divided by annual payroll)
4. Cents per hour (cost per employee per hour)

A. Annual Cost of Benefits and Services for all employees:

- This method provides total annual cost figures for each benefit
- An organization should develop according procedures that compute such costs.
- The continued growth of computerized accounting and bookkeeping procedures will help
capture these costs.
- This method is valuable in developing budgets and in describing the total cost of the
benefits program.

B. Cost per employee per year:

- Simple bookkeeping procedures permit the development of annual cost of annual costs per
employee of particular benefits (especially those benefits and services in the category of
pay for time not worked and in some of the employer security and health benefits).
- Firms must maintain accurate records of total costs of each program (eg. Bowling
tournament, or sports) per year and those employee who are recipients.
- Then, it is possible to divide the total cost of the program by the number of employees
receiving the benefit or the service and to allocate the costs to each employee.
- In addition to determining the cost of each benefits, companies also might want to know the
aggregate cost of benefits per employee.  Here, the employer simply accumulates the
total cost of all benefits and services and divides that figure by the average number of
workers employed during the year.
- When an employer tells employees of the amount the organization has paid to obtain the
annual benefits offered  tis figure probably has some impact. However, in order to
achieve the greatest effect, the information should be given to the employees along with a
cents-per-hour total and a cents-per-hour breakdown per benefit.

C. Percentage payroll (annual cost divided by annual payroll):

- Computing this requires a determination of just what the organization includes as payroll
cost for work performed.
- Some firms include only straight-time costs and consider premiums to be part of the benefit
costs.  this problem emphasizes the importance of identifying and defining benefits and
services and often requires major policy decisions by senior management.
- After identifying and classifying all compensation costs, nothing more is necessary than a
simple mathematical computation to determine the cost of each component and the total
cost of benefits and services as a percentage of payroll.
- This figure is valuable in comparing benefit and services costs with those of other
organizations.

D. Cents per hour (cost per employee per hour):

- This varies among organizations because of the different ways to identify and define the
term “Hour”.
o In one organization, Hours may mean an arbitrary figure calculated by multiplying
the days the organization operated during the year by 8 hours (eg. 260 x 8 hours =
2,080 hours);
o Another organization, it may mean the total actual hours worked by the employee.
 This is possible to calculate cents per hour by dividing the total benefits costs
by the total number of hours worked during the year.
- This method is used frequently in expressing the cost of benefits.  it is valuable to an
organization that must bargain with unions over wages, hours, benefits, and other issues.
- In discussing the total compensation package  it is possible to relate direct wage rates to
benefits costs and o develop a cost for the total package.
- This method is also valuable in communicating the cost of benefits to employees because
they can relate this figure to their hourly pay.
o The major problem here is that this figure may not have an impact on the employee
because it is still a relatively small number.
o A service worker being paid $6 (or Php 315.00) an hour may not attach much
significance to the fact that the company paid $2 (or Php 105.00) in benefits costs
for each hour worked.
o On the other hand, the significance of the benefit may seem greater if the figure is
given as $4,160 (or Php 218, 400) a year (computed as: $2 x 2,080 hours/year).