An employee costs more than their salary. Payroll taxes, insurance, benefits, equipment, and paid time off usually add 20–40% on top. This calculator adds all of it up with 2026 federal payroll tax rates, shows the true cost per productive hour, and checks whether the hire brings in enough to pay for itself.
Employee Cost Calculator
The full cost of a hire, and how much revenue it must bring in.
True annual cost of this employee
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Estimates only. Results update as you type. Nothing you enter leaves your browser.
What goes into the true cost of an employee
- Employer payroll taxes. Social Security is 6.2% of wages up to the 2026 wage base of $184,500. Medicare is 1.45% of all wages. Federal unemployment (FUTA) is effectively 0.6% on the first $7,000, or $42 per employee in most states. You also pay state unemployment tax at a rate your state assigns.
- Workers' compensation insurance. This is priced as a percentage of payroll and depends heavily on the job. Clerical rates are low, while roofing and construction rates can be many times higher.
- Benefits. These include the employer share of health insurance, retirement contributions, and perks.
- Equipment and overhead. This covers a computer, software seats, tools, a vehicle, and workspace.
- Paid time off. PTO doesn't raise the annual total, but it cuts the hours actually worked, which raises the real cost per productive hour.
- Hiring and onboarding. Job ads, recruiter fees, and the weeks before a new hire is fully productive.
Worked example
A $55,000 salaried office manager with a $500/month health contribution, 3% retirement match, and typical taxes and overhead costs about $70,693 a year. That is 1.29× the salary, or about $36.07 per productive hour after 15 days off. To cover that cost at a 50% gross margin, the role needs to support about $11,782 a month in revenue.
Deciding whether to hire
A hire makes sense when the gross profit it creates exceeds its full cost. That profit might come from new sales it enables, or from the work it takes off your plate so you can sell more. The second half of the calculator tests that. If the numbers fall short, look at part-time help, a contractor, or automating the repetitive part of the job first. Then rerun the numbers when demand is proven. If you're weighing a hire against your cash, check your cash runway too.
Frequently asked questions
How much does an employee cost on top of salary?
For most small businesses, the full cost is about 1.2 to 1.4 times base pay. Rich benefits packages or high workers' comp rates can push it past 1.5 times.
What payroll taxes does an employer pay in 2026?
Federally, employers pay 6.2% Social Security on wages up to $184,500, 1.45% Medicare on all wages, and FUTA of about $42 per employee in most states. State unemployment tax varies. Some states and cities add other payroll taxes.
Is a contractor cheaper than an employee?
Often, for part-time or project work, because you don't pay payroll taxes or benefits. But you get less control over how and when the work is done. Worker classification rules are strict, so check with your accountant or an employment attorney before choosing.
What's the true hourly cost of a salaried employee?
Divide the total annual cost by hours actually worked. That is paid hours minus vacation, holidays, and sick days. The calculator shows this as cost per productive hour.
More free small business calculators
See all thirteen on the small business calculators page.
These calculators give planning estimates, not tax, legal, or financial advice. Check important decisions with your accountant or lender.
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