Estimator
What does an employee actually cost you?
The salary is the part everyone budgets for. Payroll taxes, insurance, and the time a person is paid for but not working are the parts that surprise owners in the first year.
Your numbers
Refine the estimate
Unemployment and workers compensation vary enormously by state and by role, so they are yours to set.
Fully loaded annual cost
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- Employer payroll taxes
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- Workers compensation
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- Retirement match
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- Benefits
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- Equipment and overhead
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- Cost as a multiple of salary
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- Hours actually worked
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- Cost per productive hour
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- Contractor rate that costs the same
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Read this part
What this still leaves out
A number without its assumptions is worse than no number. Here is what the model does not reach.
- Management time. Hiring, onboarding, and supervising are real costs that never appear on a payroll report, and they fall on whoever is already busiest.
- Ramp-up. Almost nobody is fully productive in month one. A role that takes a quarter to come up to speed effectively costs more per useful hour in year one.
- State and local levies. Some states and cities add paid family leave, transit, or training taxes on top of unemployment.
- Severance and turnover. If the hire does not work out, recruiting and lost time repeat. That risk is real but not something a calculator should pretend to price.
The output worth remembering is not the total but the multiple and the hourly. Once you know a hire runs roughly 1.3 times salary and a given cost per worked hour, you can price work and plan headcount without redoing this each time.
The mechanism
Where the extra cost comes from
An employer pays its own half of Social Security and Medicare on top of the employee’s: 6.2% to the annual wage base and 1.45% with no ceiling, so 7.65% of salary for most people.
Federal unemployment tax is small, effectively 0.6% on the first $7,000 once the standard state credit applies. State unemployment is the one that varies: your rate depends on your state and your claims history, and it applies only up to a state wage base that ranges from a few thousand dollars to well over sixty thousand. That base matters as much as the rate.
Workers compensation is priced per hundred dollars of payroll by job classification, so an office role and a site role differ by an order of magnitude. Benefits and a retirement match then sit on top.
Paid time off works differently from all of these. It does not add to what you spend; it reduces what you get, which is why it belongs in the hourly figure rather than the annual one. Twenty-five days off turns 2,080 paid hours into about 1,880 worked ones, and every hour of output costs proportionally more.
Common questions
Before you act on the number
On the payroll tax line yes, because you skip the employer half of Social Security and Medicare, unemployment, and usually workers compensation. In practice contractors charge more per hour precisely because they carry those costs themselves, which is why this calculator shows the contractor rate that would cost you the same. The decision should turn on classification rather than price: if you control how and when the work is done, the person is likely an employee whatever the contract says, and misclassification means back taxes plus penalties.
Because SUTA only applies up to it. A 2.5% rate on a $7,000 base costs $175 a year; the same rate on a $72,800 base costs $1,820. States differ by more than ten times on this, so a national rule of thumb for the loaded multiple can be materially wrong for your state. Washington's base is among the highest in the country.
Yes, and it is one of the most common things owners miss. An employee working in another state generally creates a payroll registration there, often an income tax withholding obligation, and sometimes nexus for the business itself. The unemployment rate and wage base become that state's, not yours. Check it before the first paycheck, not after.
If you are an S-Corp, your own salary carries the same employer payroll taxes as anyone else's, which is exactly the cost the S-Corp estimator weighs against the tax it saves. If you are a sole proprietor you are not on payroll at all and pay self-employment tax on profit instead.
Planning your first hire?
Payroll setup, multi-state registration, and the classification question are all worth getting right once.