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View Full Version : FICA + cost of health care is a job killer?



c1ue
02-19-12, 03:23 PM
Thought experiment:

Are you better off paying 1 person $200K or 2 people $100K in salary - which generally presumes a high skill occupation like high technology?

Well, from a pure cost perspective, it can be argued that you are far better off from a spending standpoint with the 1 person.

As a company, you have to pay FICA share: 7.65%

For the $200K person, this amounts to $6034.20 even with the reduced payroll taxes Obama passed ($106800 limit).

For the 2 - $100K persons, this amounts to $11,300.

Plus for the 2-$100K people the company would have to pay for 2 health care contributions, for the 1 person @ $200K only one - even if perhaps overworks leads him to use more of it.

Average annual spending by corporations on health care in 2009 was $9,660.

There are presumably additional costs associated with management, with other employee benefits, etc.

Add this all up, we're talking at least $15K, more like $20K - which amount to a 10% difference to employ 1 less person (less for overall cost per employee, but still considerable).

While the FICA portion wouldn't apply to those making less - which includes almost all hourly workers - the remainder does: health care, perks, management, administration, etc - with health care likely the biggest culprit.

Food for thought.

doom&gloom
02-20-12, 04:15 AM
Depends upon output from one v. two people. I was in the employment business for 24 years, I know all these numbers quite well. At some point you cannot pay most people enough to get more productivity out of them, and you bite the bullet and hire more. Just like a maid paid 2x the wage cannot clean 2x the hotel rooms in the same time.

vt
02-20-12, 12:08 PM
Unfortunately some businesses are hiring two people part time. This may still be extra FICA, but avoid other benefits such as health care coverage and retirement contributions. Many small business owners are squeezed by costs, lagging demand, over regulation, and uncertainty over the future of the economy. They resort to part time employees; the added benefit is they can see performance before hiring a few of these part timers full time.

How many readers here run a small or medium size business? It would be interesting to get perspective to your view on the structural issues of employment in this economic environment.

c1ue
02-20-12, 04:02 PM
Depends upon output from one v. two people. I was in the employment business for 24 years, I know all these numbers quite well. At some point you cannot pay most people enough to get more productivity out of them, and you bite the bullet and hire more. Just like a maid paid 2x the wage cannot clean 2x the hotel rooms in the same time.

I quite agree.

However, is it fair to say that you could get say, 25% more out of each worker and cut the work force by 25%, and thus reap 25% of the above savings?

A 1.25% savings across the entire work force is nothing to sneeze at either.


Unfortunately some businesses are hiring two people part time. This may still be extra FICA, but avoid other benefits such as health care coverage and retirement contributions.

A very good point as well.

If true, this reinforces the point above.

lektrode
02-22-12, 06:47 PM
ahhh mr c1ue, am glad to see you and D&G can find something to agree on once in while, as you 2 are great sources of informed opinion and fabulous debaters (when y'arent firin the flamethrower at each other ;)

adding: writing as a self empl'd type, FICA and med ins are my 2 biggest out of pocket costs once past the 'gross profit' line - would think that applies to most all small biz?

meaning that any increases in these 2 are bad for hiring.

that said, its simply dumbfounding to me that if the 'entitlements' are supposed to be The Big Problem with the fed budget/deficit, and social security/medicare are the bullseye in these discussions - why isnt the income limit lifted on FICA 'contributions' ? (along with means testing of the payouts)

personally, its OUTRAGEOUS that i get stuck paying a full 15point-whatevah on ALL my income, while those above 106k pay less and in most cases, A LOT LESS - when we have people being paid 10s of millions annually and only forking out 15grand/year in FICA?

just how is that 'fair' ?

charliebrown
02-22-12, 07:26 PM
from and ideological point, fica was not supposed to be a tax, but an insurance program managed by the gvt. federal insurance contributions act. Your benefits are limited so your 'pemiums' are limited too. After the unified budget act, where the SS income stream was used for other things, this notion kind of went out the window. The whole thing needs to be restructured both from and accounting and an ideological point of view.

This kind of thinking leads me to think maybe the whole thing needs to be disbanded, and make the SS only for the poor who cannot save to care for themselves in their old age and disablity. Those who are well enough off, have to save for themselves. I don't know if the numbers work out,
but say a payroll tax of 2% on everyone, and means test the benefits. rather than the current system where everyone is elibable and forced to pay in. I Don't know how to move from the current system to the new one. The promises are already not keepable. Could we just keep raising the retirement age until nobody lives that long? Say 1 year every decade.

I find the mandatory contribution kind of irksome too. My mother passed at 52, by father at 62.4 My mother saw not one check, my father, 4.
Yet they paid in all their lives. There are a bunch of people out there who know they are not going to make 65, or 67, yet they are forced to contribute
to an insurance plan that will never pay out for them.


I do think there should be some stocks in the trust fund, although a very low percent 20??, and managed by a robot, not a fire-man and replicates the s&p. The treasuries it holds should be marketable, so that in a budget crisis, the payouts cannot be held hostage. The trust can sell its treasury holdings to raise cash without an act of congress, and budget ceilings etc.

doom&gloom
02-22-12, 08:49 PM
ahhh mr c1ue, am glad to see you and D&G can find something to agree on once in while, as you 2 are great sources of informed opinion and fabulous debaters (when y'arent firin the flamethrower at each other ;)

adding: writing as a self empl'd type, FICA and med ins are my 2 biggest out of pocket costs once past the 'gross profit' line - would think that applies to most all small biz?

meaning that any increases in these 2 are bad for hiring.

that said, its simply dumbfounding to me that if the 'entitlements' are supposed to be The Big Problem with the fed budget/deficit, and social security/medicare are the bullseye in these discussions - why isnt the income limit lifted on FICA 'contributions' ? (along with means testing of the payouts)

personally, its OUTRAGEOUS that i get stuck paying a full 15point-whatevah on ALL my income, while those above 106k pay less and in most cases, A LOT LESS - when we have people being paid 10s of millions annually and only forking out 15grand/year in FICA?

just how is that 'fair' ?

If you haven't already, and you can afford the income hit, form a Sub-S, create a retirement plan, and fund it with all the pre-tax dollars you can. Use your biz to take as many legal writeoffs as possible to subsidize your lifestyle where possible.