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Precision Quality Software, Inc.
Loaded Hourly Wage Rate
A loaded hourly wage rate is what a company pays per hour to employ someone, not what that person makes in hourly wages.
The loaded hourly wage rate includes the cost of benefits (health insurance, vacation, etc.). To be reasonably accurate it must include every prorated cost of "having a butt in a chair" (including the cost of the chair -- and the desk, the PC, network access, stationery, insurance, payroll service, phone access and so on).
To be truly precise, it must actually cover even more costs, such as the prorated price of hiring, firing, parking space, office space, the utility bill and so on – costs that would have vanished if one had no operational employees and hence smaller facilities.
We have yet to see automation reduce facilities-related costs, but a non-automated business has to hire more people if it grows, and might outgrow its current facilities, requiring a move to a more expensive location. A long-range perspective on automation should factor in such issues.
Even a more conservative calculation leads to a far higher loaded hourly rate than most managers would have guessed. This is one of the ironies of automation: its benefits are often overlooked and underfunded. The potential client is "leaving money on the table" when making ROI decisions unless they calculate the loaded hourly rate carefully.
Last time we checked with some of our clients who researched the issues semi-formally, the loaded hourly rate was:
We suggest you do your own math to factor in all the costs of having one more employee.
- Close to $50 per hour for a customer service employee employed at a telephone company in northern Nevada, and
Slightly more than $50 per hour for an office employee employed at a high-tech company in Silicon Valley.
There are some subtleties that are real but hard to quantify. The more office employees you have around, the more complex (and possibly, messy) your office politics can get. This can reduce general productivity and require a lot of management time, to keep the peace. More automation means you have the option of hiring less people.
Alternatively, with the money freed up by automation, you might nevertheless choose to hire more people, and have them perform other productive work. With automation, you can exercise either option.