What is the true cost of an employee?

The true cost is typically 1.25-1.4x the base salary when including benefits, payroll taxes, insurance, equipment, and training.

What are employer payroll taxes?

Employers pay Social Security (6.2%, only on wages up to the $184,500 annual wage base), Medicare (1.45%, uncapped), Federal Unemployment/FUTA (0.6%, only on the first $7,000 of wages), and State Unemployment/SUTA (rate and wage base both vary by state — e.g. California's SUTA wage base is just $7,000, while Washington's is $78,200). Because FUTA and most SUTA wage bases are low, these employer taxes stop accruing well before a full year's salary is reached for most employees.

What benefits should I include?

Common benefits include health insurance, 401(k) matching, workers compensation, paid time off, training, equipment, and software licenses.

How do I calculate hourly cost?

Divide the total annual cost by 2,080 hours (40 hours per week × 52 weeks) to get the true hourly cost.

Is a 1099 contractor always cheaper than a W-2 employee?

Not necessarily on a rate basis, even though the business pays no payroll taxes or benefits for a contractor. Contractors typically price their rate 15-35% above what an equivalent employee's base pay would be, to self-fund their own self-employment tax (15.3%) and benefits. Toggle "Compare to a 1099 Contractor" above to see the estimated difference at your assumed premium. This is a cost comparison only — worker classification is a separate legal question, and misclassifying an employee as a contractor carries real IRS and state penalties.

Business Calculators

Employee Cost Calculator

Calculate total employee cost including salary, benefits, and employer taxes with expense tracking. Features per-employee cost breakdown and annual totals including payroll taxes (FICA, Medicare, unemployment), health insurance, retirement contributions, paid time off, and training.

How to Use the Employee Cost Calculator

Use the Employee Cost Calculator to total employee cost including salary, benefits, and employer taxes with expense tracking. Features per-employee cost breakdown and annual totals including payroll taxes (FICA, Medicare, unemployment), health insurance, retirement contributions, paid time off, and training.. Enter your values to get accurate, instant results tailored to your situation.

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Employee Cost Guide

True hiring costs

Expert Tips

True Cost is 1.25-1.4× Salary: $80K salary becomes $100K-112K total cost. Employer payroll taxes (7.65%), benefits (health $12K-20K, 401k 3-6%), unemployment insurance, workers comp. Budget 25-40% above salary for total employment cost.
Benefits Add $15K-30K per Employee: Health insurance: $7K-15K (single) to $20K-25K (family). 401k match: 3-6% of salary ($2.4K-4.8K on $80K). Paid time off: ~$6K (15 days at $80K salary). Total benefits package: 25-40% of salary. Account for this when hiring.
Payroll Taxes are 7.65% Employer Share: Employer pays: Social Security 6.2% + Medicare 1.45% = 7.65% on every dollar. $80K salary → $6,120 payroll tax. Plus federal unemployment (FUTA) 0.6%, state unemployment 0.5-5.4%, workers comp 0.5-5%. Total taxes: 9-15% of salary.
Contractor vs Employee Breakeven: Contractor at $60/hour ($125K/year) vs employee $80K + $30K benefits = $110K total. Contractor saves on benefits but no loyalty/control. Breakeven: Contract <10-15% more than employee total cost, hire employee. Contract >15% more, keep contractor.
Remote Work Saves 20-30%: Office space: $5K-15K/employee/year. Commuter benefits: $3K. Equipment/supplies: $2K-5K. Remote eliminates $10K-23K facility costs. But provide home office stipend ($500-1,500/year), internet ($600/year), equipment ($1K-2K upfront). Net savings: 15-25% on overhead.

Essential Fundamentals — Cost breakdown

Total Compensation Components

Base Salary: Gross pay before taxes/deductions. Determines tax withholding, benefits calculations, and overtime pay (1.5× for hourly non-exempt). Market rate varies by role, location, experience. Research Glassdoor, salary.com, Payscale for benchmarks.
Employer Payroll Taxes: FICA: Social Security 6.2% (capped at $160K) + Medicare 1.45% (no cap) = 7.65%. FUTA: 0.6% on first $7K (federal unemployment). SUTA: 0.5-5.4% on first $7K-45K (state unemployment). Workers comp: 0.5-5% depending on industry risk. Total: 9-15% of salary.
Benefits Package: Health insurance: $7K-15K single, $20K-25K family (employer pays 70-80%). Dental/vision: $500-1,500/year. 401k match: 3-6% of salary. Life/disability insurance: $500-1,500/year. Paid time off: 15-20 days = 6-8% of salary. Total benefits: 25-40% of base salary.

Advanced Strategies — Cost optimization

Workforce Planning

Contractor vs. Employee Trade-offs: Contractors cost more per hour but avoid benefits and long-term commitment. Use contractors for variable workloads, specialized short-term needs. Hire employees for core functions and institutional knowledge.
Remote Work Savings: Eliminate office costs like facility expenses and commuter benefits. Redirect savings to competitive compensation and home office stipends. Remote hiring expands talent pool beyond expensive markets.
Benefits Optimization: Review benefits packages annually for cost-effectiveness. Consider high-deductible health plans with HSA contributions. Negotiate group rates with providers. Benchmark against industry standards to stay competitive without overspending.

Frequently Asked Questions

What is the true cost of an employee?: The true cost is typically 1.25-1.4x the base salary when including benefits, payroll taxes, insurance, equipment, and training.
What are employer payroll taxes?: Employers pay Social Security (6.2%, only on wages up to the $184,500 annual wage base), Medicare (1.45%, uncapped), Federal Unemployment/FUTA (0.6%, only on the first $7,000 of wages), and State Unemployment/SUTA (rate and wage base both vary by state — e.g. California's SUTA wage base is just $7,000, while Washington's is $78,200). Because FUTA and most SUTA wage bases are low, these employer taxes stop accruing well before a full year's salary is reached for most employees.
What benefits should I include?: Common benefits include health insurance, 401(k) matching, workers compensation, paid time off, training, equipment, and software licenses.
How do I calculate hourly cost?: Divide the total annual cost by 2,080 hours (40 hours per week × 52 weeks) to get the true hourly cost.
Is a 1099 contractor always cheaper than a W-2 employee?: Not necessarily on a rate basis, even though the business pays no payroll taxes or benefits for a contractor. Contractors typically price their rate 15-35% above what an equivalent employee's base pay would be, to self-fund their own self-employment tax (15.3%) and benefits. Toggle "Compare to a 1099 Contractor" above to see the estimated difference at your assumed premium. This is a cost comparison only — worker classification is a separate legal question, and misclassifying an employee as a contractor carries real IRS and state penalties.