How to calculate the cost of an employee

What does an employee cost?

1. Gross Salary
2. Holiday Allowance
3. Pension Contributions
4. Employee Insurance Premiums & Health Insurance Act (ZVW)
5. Expense Reimbursements
6. Total Employer Costs

These are collectively referred to as employer costs—expenses incurred by the employer on top of the gross salary. They can be categorized into mandatory (fixed) and additional employer costs.

1. Gross salary

The primary component is the gross salary agreed upon in the employment contract. This can be specified per hour, week, or month. For accurate cost estimation, it's best to use the fixed gross monthly salary.

2. Holiday allowance

Employees are entitled to a statutory holiday allowance of 8% of their gross salary. This can be paid monthly or annually (commonly in May). The timing doesn't affect the total cost.

3. Pension contributions

If your organization isn't bound by a collective labor agreement (CAO), a pension scheme isn't mandatory. However, if you offer one, estimate the employer's contribution—typically around 8% of the gross salary.

4.  Employee insurance premiums & ZVW

Employers must pay additional premiums for employee insurances, such as:
- Unemployment Insurance (WW)
- Disability Insurance (WAO/WIA)
- Sickness Benefits (WGA/ZW-flex)
- Health Insurance Act (ZVW)

These combined premiums usually range between 19% and 24% of the gross salary plus holiday allowance, minus the employee's pension contribution.

5. Expense reimbursements

Employers may provide tax-free reimbursements for expenses like travel or phone usage. These should be included in the total cost.

6. Total employer costs

Summing all components:

- Gross salary: €2,080
- Holiday allowance: €166.40
- Pension contribution: €179.71
- Insurance premiums & ZVW: €413.34
- Expense reimbursements: €225

Hopefully we've helped you get started with this and you've now been able to understand how costs are structured. Would you like to know in a very precise way what the costs of an employee are? Then have a test calculation made by your accountant or bookkeeper.

Simple software for your payroll

You can also choose to gain insight in a simple way by using simple payroll software. For example, create a free acount through Employes and enter your employee's information. After doing a trial payroll, you can then go to the employer payroll report to get good insight.