Estimate the true yearly cost of an employee beyond salary, including employer payroll taxes, benefits, retirement contributions and other costs, and the real hourly cost.
Why an employee costs more than their salary
Salary is only part of what an employer pays. In the U.S., the total cost of an employee is often about 1.2 to 1.4 times their salary once taxes and benefits are added.
What is included
- Employer payroll taxes: the employer's share of Social Security (6.2% up to the yearly wage limit) and Medicare (1.45%), together 7.65%.
- Unemployment taxes: federal (FUTA) and state (SUTA) taxes, usually on the first part of each employee's wages.
- Benefits: health, dental and vision insurance, often the largest extra cost.
- Retirement contributions: such as a 401(k) match.
- Other costs: equipment, software licenses, training, workers' compensation insurance and recruiting.
Worked example
For a $60,000 salary: payroll taxes of $4,590, unemployment taxes of about $600, $9,000 in health benefits, a 3% retirement match ($1,800) and $1,500 of other costs bring the total to about $77,490, or 1.29 times the salary. Spread over 2,080 paid hours, the real cost is about $37.25 an hour.
Using the number
- Pricing services: charge more than the fully loaded hourly cost to cover overheads and profit.
- Hiring decisions: compare the total cost with the revenue or savings a role will bring.
- Employee vs. contractor: contractors may charge more per hour but do not carry benefits or payroll taxes.
Frequently asked questions
Do these rules apply in every state?
Federal rates apply nationwide, but state unemployment rates, wage bases and required benefits vary. Check with your state or a payroll provider.
Should paid time off be included?
It is already part of salary. If you want cost per productive hour, reduce the paid hours to exclude holidays and vacation.
Related tools
Results are estimates for planning and education. They are not accounting, tax or legal advice. Check important figures with a qualified accountant.