As any business owner will tell you, jobs are not created because there is a tax credit available. Jobs are created because it’s not possible to get the job done without more hands on deck and there is income to meet payroll. It’s time to look at the numbers.

The state of Washington has already determined we must pay no less than $9.04 per hour in 2012, no matter how unskilled our new employee might be or how slow the work pace. We’re assuming a part time job at 20 hours per week, or a total minimum wage base pay of $180.80. That adds up to a base pay of $7,232.00 working part-time from March thru November.

But wait, there’s more . . . 

A friend who knows what she’s doing suggested I take a look at IRS Publication 15 (Circular E) Employer’s Tax Guide (link here It is the basic resource for anyone running payroll, but I quickly concluded the “E” is not for “Easy.”  59 pages of text and tables were not exciting after dinner reading.

Fortunately my friend, Brittany Fleming of Travis Pattern & Foundry, is an experienced Payroll Manager. She was willing to help walk me through the steps to figure out the impact of payroll taxes, and created a handy Excel spreadsheet to allow me to plug in different hours and wage combinations and see the impact on the bottom line.




Anticipated Tax Amount

State Unemployment


Varies based upon employer experience; Average for 2011 is listed here for new employers, actual rate can vary…


Federal Unemployment


This would be 6.2% except you get credit for what you pay in state taxes unless you are in a “Credit Reduction” state.  Washington is not one of those states.  Also Wage Base may change for 2012 due to pending legislation.


Social Security






L&I Workers Comp  $2.1768 Rate is per HOUR worked. – you are also allowed to deduct a portion of the premium from employee’s paycheck (amount authorized is determined when they provide you with your rate notice)








At minimum wage, payroll taxes add almost 35% to the total cost of adding this employee. What surprised Brittany as she put the chart together was the high rates charged by Department of Labor & Industries for Workers Compensation for a livestock operation. L&I Workers Comp is essentially a publicly run billion dollar disability insurance plan for employees, and the rates for a hired hand working with unpredictable livestock are higher than the rates for factory workers handling molten metal. The state has a monopoly on this mandatory insurance, and it is consequently more expensive than in other states.

Back to the basic question – do we or don’t we create a job? Can we afford to give up $9.759.15 of our income to pay an employee? Will having a hired hand allow me time to bring in enough off-farm income to pay for on-farm help? Workers Comp doesn’t cover business owners – would I be better off buying a good disability policy for myself than trying to prevent injury by getting some help? How about putting the money into capital improvements to make it easier to do the work without outside help? Can we make do with contract day labor and stay under the threshold for regulatory attention?

I was mulling over these question while my husband attended tonight’s Lions Club meeting. He arrived home to tell me about the speaker, who was introduced as an expert in working with L&I in a consulting role to businesses, helping protect businesses from fines by improving their paperwork and protecting their employees by improving safety.

The speaker painted a bleak picture of the environment for an employer in Washington – over 54,000 regulations to follow, penalties going up dramatically on January 1st as the state seeks to bring in more money, and a bureaucracy tilted in favor of finding fault rather than protecting worker safety. We have a higher injury rate and a lower return to work rate than similar states. The same agency that is charged with protecting worker safety makes most if its money off managing worker injuries, creating a conflict of interest. Washington’s benefits system is famous for being so generous that we attract malingerers from other states hoping to work the system rather than find meaningful work, making screening of new hires critical.

It was enough to make us both think twice about whether it’s worth the hassle to create a job. When I started this series, we had every intention of hiring an employee in January. Now we’re not so sure.

What would you do in our place?


For previous stories in the series, search this site for “small business tales”.


[photo credit: Tom Carmony]