Employee Cost Calculator

What Is the True Cost of an Employee?

When a candidate accepts a $75,000 salary offer, that number is not what the hire actually costs your company. The true cost of an employee includes payroll taxes, health insurance, retirement contributions, equipment, software, training, and the fraction of office overhead attributable to that person. A common rule of thumb puts the all-in cost at 1.25x to 1.4x the base salary, so that $75,000 hire would cost $93,750 to $105,000 a year. With the calculator’s default inputs, a $60,000 hire comes to 1.41x. Understanding this figure is essential for accurate headcount budgeting, making the right employee vs. contractor decisions, and presenting realistic workforce plans to leadership.

What Drives Employee Cost Beyond Salary

The gap between salary and total cost is made up of several distinct categories:

• →Payroll taxes. Employers pay Social Security (6.2%), Medicare (1.45%), and federal/state unemployment taxes on top of every employee's gross wages.
• →Health and dental benefits. In the KFF 2025 Employer Health Benefits Survey, employers paid on average about $7,885 a year toward single coverage (about $657 a month) and about $20,143 toward family coverage (about $1,679 a month). The calculator’s default of $7,200 is a little below the single-coverage average, so use your own quote.
• →Retirement contributions. A 3–5% 401(k) match adds 3–5% of the salary to the yearly cost for each employee who takes it up.
• →Equipment and software. A laptop, monitor and accessories are a one-time cost in year one, and software licenses are paid every year. The calculator spreads equipment over three years.
• →Onboarding and training. Manager time, training materials, and the productivity ramp period before a new hire reaches full output all have a real cost.

Worked Example: What a $60,000 Employee Really Costs

This is the calculator’s default hire, line by line. If you press Calculate above without changing anything, you get the same total. Payroll taxes come first, then benefits, then the cost of equipping and supporting the person.

The paid time off line is not extra cash. The salary already pays for those 20 days. It is in the total because you pay for 20 days with no work, so every day that is worked costs more. If you only want the cash you pay out in a year, set PTO days to 0: the total becomes $79,907.

Employer Payroll Tax Rates for 2026

These are the employer-side rates the calculator applies. They are the half you pay on top of the salary — the employee pays their own matching share of Social Security and Medicare out of gross pay.

Sources: the SSA’s contribution and benefit base table (Social Security and Medicare rates, 2026 wage base) and IRS Topic 759 (FUTA). The wage base changes every January, so check it before you rely on a figure in a budget.

What an Employee Costs at Each Salary Level

Run with the calculator’s default assumptions — $7,200 health insurance, 4% retirement match, 20 PTO days, $3,000 equipment amortised over three years, $1,500 training, 5% overhead and a 2.5% SUTA rate. Change any of them above and the numbers move.

The multiplier falls as salary rises because the fixed costs — health insurance, equipment, training — stay flat while the salary grows, and Social Security stops applying above the wage base. That is why a cheap hire is rarely as cheap as the salary line suggests: at $40,000 you are paying about 1.5x, not 1.25x.

Hourly Employee Cost: A $20-an-Hour Example

The calculator asks for a yearly salary. For an hourly worker, multiply the hourly rate by hours per week and by 52 weeks: $20 × 40 hours × 52 weeks = $41,600. Enter that as the salary. The table shows two cases: wages plus employer payroll taxes only (every other input set to 0), and the same worker with the calculator’s default benefits and overhead.

So a $20-an-hour employee costs at least $21.63 an hour. Payroll taxes alone add about 8% to wages. With typical benefits and overhead, it is closer to $29.64 an hour. Part-time hourly staff often get fewer benefits: in the BLS data below, benefits were 20.0% of compensation costs for part-time private industry workers, against 31.5% for full-time workers.

Where the Money Goes: Employer Costs per Hour Worked

The U.S. Bureau of Labor Statistics (BLS) measures what private employers actually spend per hour worked. These are the June 2026 figures, the latest available.

Source: BLS, Employer Costs for Employee Compensation, June 2026 (released September 9, 2026; tables 1 and 5). Shares are of total compensation.

• →Benefits are about 30% of the total. For every $100 a private employer spends on pay and benefits, $70 is wages for hours worked and $30 is benefits. For full-time workers it is $68.50 and $31.50.
• →Do not count paid leave twice. BLS counts paid leave and bonuses as benefits. A yearly salary already includes pay for leave days, which is why the calculator’s paid time off line is a share of the salary, not extra cash.
• →Health insurance is the biggest single benefit. It was $3.48 per hour worked (7.4% of total compensation) across private industry.
• →Workers’ compensation is not a separate line in the calculator. BLS counts it as a legally required benefit: $0.43 per hour worked (0.9%) across private industry. Add your own premium to the overhead input.
• →BLS leaves some costs out. It does not count equipment, software, office space, training or recruiting. The calculator adds those, so a fully loaded cost is higher than wages plus the BLS benefit lines.

Employee vs Contractor (W-2 vs 1099): Which Costs Less?

An employee costs the salary plus payroll taxes, benefits and overhead. An independent contractor costs only what they invoice. The fair way to compare them is the cost per hour actually worked, because a contractor only bills for hours worked.

How the $41.62 is worked out: the cash cost of the default hire is $79,907 a year (the total without the paid time off line). They work about 1,920 hours: 2,080 hours minus 20 days off. $79,907 ÷ 1,920 = $41.62. A contractor who bills less than that for the same hours costs you less. One who bills more costs you more.

• →Contractor rates are higher for a reason. A self-employed person pays both halves of Social Security and Medicare as self-employment tax, 15.3% in total. They also buy their own health cover and get no paid leave.
• →You cannot choose contractor status to save money. The IRS looks at the whole relationship: behavioral control, financial control and the type of relationship. If you control what the person does and how they do it, they are likely an employee, even when they work remotely.
• →When a contractor makes sense. Short projects, specialist work you need for a few months, or work with a clear deliverable. For ongoing full-time work in your own process, an employee is usually the better fit.

Sources: IRS, Independent contractor or employee and IRS, Self-employment tax. This is general information, not tax or legal advice.

How to Use This Calculator

1. 1Enter the base salary. Use the annual gross salary you plan to offer or are currently paying the employee.
2. 2Adjust benefit and overhead rates. Customize the employer benefit contribution percentages and overhead allocation to match your company's actual rates.
3. 3Review the all-in total. Use this number in your headcount budget, leadership presentations, or when deciding between a hire and a contractor.

Tips for Using Employee Cost Data

• →Always present all-in cost to leadership. Salary-only headcount requests lead to budget overruns. Use the full cost to set accurate expectations from day one.
• →Use the multiplier to evaluate contractor vs. hire decisions. If a contractor charges $90/hr for work a $70k employee could do, the math may still favor the employee at scale.
• →Benchmark benefit costs annually. Healthcare premiums rise year-over-year. Revisit your cost estimates when doing annual headcount planning.
• →Factor in turnover cost. Gallup estimates that replacing an employee can cost one-half to two times their annual salary. Keeping good people is usually cheaper than hiring new ones.
• →Use this alongside your hiring budget calculator. The total employee cost is the ongoing annual cost; the hiring budget covers the one-time cost of finding and onboarding the person.

Frequently Asked Questions