Employee Cost Calculator (True Cost)
The hire
True cost
Related: all finance calculators
How to use the employee cost calculator
- Enter base salary — the offer-letter number.
- Set benefits % — health insurance typically 8–12% of salary for small-company plans, plus any retirement match.
- Add workers comp & unemployment — 1–2% for office roles, 5–15% for trades.
- Count equipment and seat costs — laptop, software licenses, desk or vehicle share.
- Amortize recruiting — hiring costs spread over expected tenure. The multiplier line is the number to memorize.
What an employee actually costs
The rule of thumb says 1.25–1.4× salary; the honest count usually lands higher. A $65,000 hire carries ~$4,970 of employer FICA, $7,800–$9,800 in benefits and insurance, $4,000 of equipment and software seats, and amortized hiring costs - a true cost near $85,000, or 1.3× the offer letter before a single unproductive hour. This calculator itemizes each layer so the multiplier is yours, not a folk estimate.
The layers, worst-first
Mandatory: employer FICA (7.65%), federal/state unemployment, workers comp (trades pay 5–15%). Competitive: health insurance ($6–12k/yr small-group), retirement match, PTO you fund but don't receive output from. Operational: software seats that scale per-head, equipment, space. Hidden: recruiting fees and the 3–6 month ramp to full productivity - amortize both over expected tenure or your first-year cost is badly understated.
Why the per-hour line matters most
True cost ÷ 2,080 hours is what to plug into job quotes and capacity math - job pricing with bare wages quietly donates the 30% overhead on every estimate. It's also the honest comparison against contractors: a $50/hr contractor vs a $25/hr employee is much closer than it looks once the employee's true $33/hr and idle time enter the frame.
Workers comp swings the multiplier more than benefits do
The 3% workers comp default hides a huge spread. Carriers price risk by NCCI classification code, not by company: clerical code 8810 often prices near the bottom of the scale, while roofing (5551) and tree care sit among the highest-rated codes in the book, commonly several multiples of the clerical rate. Two $65,000 hires at the same firm, one in the office and one on a roof crew, can carry workers comp lines that differ by thousands of dollars a year even though salary, benefits %, and equipment are identical. If your team spans job types, run each classification through the calculator separately rather than applying one blended rate. A single average understates the field-heavy roles and overstates the desk-heavy ones.
Overtime multiplies the wage, not the burden rate
For non-exempt hourly staff, FLSA overtime applies 1.5× to the base wage for hours past 40 - but fixed costs like insurance premiums and equipment don't shrink to match. A crew member logging 45 hours doesn't cost 1.3× salary on those extra 5 hours; they cost roughly base wage × 1.5, plus payroll tax on the higher total wage, while the benefits and equipment lines stay flat. That decouples the "true hourly cost" figure from overtime weeks: use this calculator for the baseline burdened rate, then run overtime hours through the overtime pay calculator separately rather than multiplying the burdened rate by 1.5, which double-counts the fixed-cost portion.
Short tenure inflates the recruiting line fastest
Amortized recruiting cost is total hiring spend ÷ expected tenure in years, and that denominator moves the number more than people expect. A $3,000 hiring cost spread over a 3-year expected tenure adds $1,000/year to true cost. The same $3,000 spread over an 8-month average tenure - not unusual for entry-level or high-churn field roles - adds closer to $4,500/year, a swing of several points on the multiplier from one input.
Related tools
Track labor as a share of revenue in the labor cost calculator, model overtime spend with the overtime pay calculator, and see what each hire does to your break-even point.
Standards and references
Employer payroll tax rates follow IRS Publication 15 (Circular E): 6.2% Social Security up to the annual wage base, 1.45% Medicare, 0.6% FUTA on the first 7,000 dollars. State unemployment (SUTA) varies; the default 3% is the US midpoint. Workers comp default (1.5%) is the BLS all-industry average.
What the calculator does not include
The tool outputs a loaded labor rate, not a fully-loaded project cost. It excludes equipment depreciation, materials markup, subcontractor margins, and overhead allocation (rent, utilities, software licenses). A shop running $180,000/year in fixed overhead across four technicians adds roughly $21.63/hour per head before any profit margin. Feed the tool's per-hour output into a labor cost calculator to build a full job estimate.
Payroll tax ceilings that change the math mid-year
FUTA applies only on the first $7,000 of wages per employee (6.0% gross, net 0.6% after the 5.4% SUTA credit). Social Security tax stops at $176,100 (2025 wage base). An employee crossing that threshold in month eight cuts your employer FICA cost by $496.20/month for the remainder of the year. Annualized burden rates front-load these costs; monthly cash flow differs materially from the annual average the calculator displays.
Frequently Asked Questions
How much does an employee cost beyond salary?
Typically 25–40% above salary: 7.65% employer FICA, unemployment insurance, workers comp, benefits, equipment, and hiring costs. Enter your specifics above for the exact multiplier.
What is the employer part of payroll taxes?
7.65% of wages (6.2% Social Security + 1.45% Medicare), plus federal and state unemployment — the employee's identical share comes out of their check, not yours.
Is a contractor cheaper than an employee?
Per productive hour, often comparable — contractors' higher rates offset your zero benefits/tax/idle-time burden. Contractors win for variable workloads; employees for consistent full-time need.
What hourly cost should I use when quoting jobs?
True annual cost ÷ 2,080 (or ÷ actual billable hours for field crews — idle time raises it further). Never bare wages.