Personnel costs

What it means

Personnel costs cover every cost related to employees and directors: wages, remuneration, holiday pay, the employer's statutory social contributions, the social fund allocation, meal contributions and other social costs. In the profit and loss statement they form a separate group of lines.

In services, consulting or IT they are usually the largest cost item of all, often more than half of total costs. They are therefore tracked not only in absolute terms but also as a share of revenue or as the cost per employee or per hour worked.

Personnel costs also include director's remuneration paid under a service agreement and contributions to supplementary pension savings. Travel allowances, by contrast, are usually booked as services, and training costs according to their nature.

How it works in practice

When planning a new position, budget for the total cost of employment, not just gross pay. Employer contributions, the social fund, meal contributions and pay for holidays and public holidays add a third to a half on top of the agreed wage, depending on benefits.

Wages and contributions are booked in the period they relate to, even when paid the following month. At year end, provisions are also made for untaken holiday and for bonuses paid after the year closes, so that the cost lands in the correct period.

In analysis, personnel costs are compared with value added and revenue. If they grow faster than income, the company loses margin; the profit and loss statement shows it earlier than the team's sense of overload, which arrives with a delay.

What to watch out for

Only costs demonstrably incurred on employees in line with the law are tax-deductible. Above-standard benefits that are neither taxed as the employee's income nor covered by an exemption may be disallowed and can also trigger additional contributions.

A high share of personnel costs increases operating leverage: when sales fall, wages cannot be cut overnight. A company should therefore hold a cash reserve covering at least several months of payroll and think through the balance between permanent staff and external capacity.