This is a modified post from one I wrote in Nov of 2007. I report this as a part owner of a small business whose costs are increasing every year while revenues are decreasing.
Therefore, I present to you all the new, improved EHR: Effective Hourly Rate.
With the absurdity of bailouts and the apparent transition from a constitutional republic to an elected monarchy, let’s see if the powers that be require us to ‘move from a 20th century economy to a 21st century economy’— by making the change from the worthless concept of ‘wages and tips’ on the W-2 to the concept of ‘total compensation’.
Should I suspect that both parties will be unable, and unwilling, to make such a tiny change in reporting that would benefit the people of the United States with real, you know, information.
The EHR should be given to all employees of all companies. What it will consist of is simple: all of the total compensation divided into what that rate would be on an hourly basis.
Let’s give an example:
Employee paid $18.00 per hour: Employee gets 3 weeks paid vacation
(or 120 hours of ‘paid time off’) and does not miss other days (we will
assume no overtime payments). Assuming that this covers a full 52 weeks
at 40 hours per week that equals 2080 hours in a year.
A bit more math: $18 x 2080 = $37,440.00.
And that is all an employee sees.
Under the EHR: (same employee)
Gross salary: $37,440.00Employer Paid Medicare Taxes: $2321.28Employer Paid Social Security Taxes: $542.88Employer Paid Unemployment: $350Employer Paid Health Insurance for employee (fully paid by employer): $4000
Total Compensation: $44,654.16
Divided by the 1960 hours worked during the year (2080 – (3 x 40 hours paid vacation))
Effect Hourly Rate (EHR)= $22.78
In other words: the EFFECTIVE HOURLY RATE IS ACTUALLY 26% GREATER than what appears to the employee.
Why is this so important? Because most
people—including employers—have little idea of how much money is spent
on health care benefits (or other benefits and additional employer
taxes, for that matter).
Question: Do employees not currently
‘pay’ for their health insurance, even when it is ‘covered’ by the
employer? Answer—of course they do; they pay in lower wages.
The EHR gives employers the ability to
accurately let employees know what their ‘cost’ is—of course, if their
‘value’ was not at least equal to that cost, the employer would likely
not keep them employed. If employees do not feel that they are
receiving an EHR equal to (or greater than) their value, they will
likely consider other options for employment.
With the Effective Hourly Rate,
prospective employees can better assess the value of a job in the
marketplace across employers, trades, professions, and location.
Until we bring these numbers ‘out of the
shadows’, we are doing ourselves, employers, employees, our economy,
and our health care system a real disservice.
(oh, and by the way, it does not require any new bureaucracy, legislation, or regulation).