Employee Cost Calculator: True Cost of an Employee

Salary is the sticker price, not the cost

A $60,000 hire does not cost $60,000. On top of wages, a US employer pays its own share of payroll taxes, federal and state unemployment tax, workers' compensation insurance, and whatever benefits it offers. For a typical small-business employee with health coverage, the real number lands around 1.25 to 1.4 times salary. Skip benefits and it is closer to 1.1 times; offer rich family coverage and it can pass 1.5 times.

Getting this right is the difference between a hire that pays for itself and one that quietly drains cash. This calculator itemizes every line so you can see where the money goes and change the assumptions that apply to your state and industry.

The mandatory taxes, with 2026 figures

Social Security: the employer pays 6.2 percent of each employee's wages up to the wage base, which is $184,500 for 2026. Wages above that are not taxed for Social Security, so the maximum employer cost per employee is $11,439.

Medicare: 1.45 percent of all wages, with no cap. The extra 0.9 percent Additional Medicare Tax on wages over $200,000 is withheld from the employee only; the employer does not match it. Together, Social Security and Medicare are the familiar 7.65 percent employer FICA.

FUTA (federal unemployment tax): 6.0 percent of the first $7,000 of each employee's wages. Employers who pay state unemployment tax on time get a credit of up to 5.4 percent, so the usual net rate is 0.6 percent, or $42 per employee per year. The $7,000 wage base has not changed since 1983. The exception is a credit reduction state, one that has borrowed from the federal government to pay unemployment benefits and not repaid the loan. California was a credit reduction state for 2025 at 1.2 percent (an extra $84 per employee), and the Department of Labor listed California and the U.S. Virgin Islands as potential 2026 credit reduction states. The final list comes in November, so enter the reduction for your state if it applies.

SUTA (state unemployment tax): every state sets its own rate and wage base. New employers usually get a starting rate of roughly 1 to 4 percent; experienced employers are rated by their layoff history. Wage bases range from $7,000 in a handful of states to well over $70,000 in Washington. Your state workforce agency mails your rate notice each year, and that is the number to use.

Worked example: a $60,000 employee

Social Security: $60,000 × 6.2% = $3,720. Medicare: $60,000 × 1.45% = $870. FUTA: $7,000 × 0.6% = $42. SUTA at 2.7 percent on a $7,000 base: $189. Workers' comp at 1 percent of payroll: $600. That is $5,421 of taxes and insurance before any benefits.

Add the employer's share of single health coverage. KFF's 2025 survey put the average single premium at $9,325 with workers paying $1,440, so employers covered about $7,885, or $657 a month. Add a 3 percent 401(k) match ($1,800), $1,000 of other benefits, and $2,000 for a laptop, software seats, and training. Total: $78,105, which is 1.30 times salary, or $18,105 above the wage.

Per hour, that is $37.55 across 2,080 paid hours. But with 25 days of vacation, holidays, and sick time, the employee works about 1,880 hours, so the cost per working hour is $41.55. Use that number when pricing services or comparing a hire with a contractor.

Employee vs contractor: compare the right numbers

A contractor quoting $45 an hour can look expensive next to a $28.85-an-hour employee ($60,000 ÷ 2,080). Put both on the same basis and the gap shrinks or reverses: that employee costs $41.55 per working hour before you count recruiting, management time, and office space. Contractors pay their own self-employment tax, benefits, and equipment.

Be careful with classification, though. Whether someone is an employee depends on control and economic reality, not on what the contract says. Misclassifying employees as contractors exposes a business to back payroll taxes, penalties, and overtime claims.

Common mistakes

Counting the employee's withholding as a cost. The employee's 7.65 percent FICA and income tax come out of their wages; they are not extra money you pay.

Applying FUTA and SUTA to the whole salary. Both stop at their wage bases, so for most salaried staff they are small, fixed amounts per person, front-loaded early in the year.

Forgetting workers' comp. It is required for employees in almost every state and priced per $100 of payroll by job classification. A roofer can cost 20 times more to insure than a bookkeeper.

Ignoring ramp-up. A new hire rarely produces at full speed for the first three to six months, so the effective first-year cost per unit of output is higher than this annual figure. Payroll software such as Gusto or QuickBooks Payroll will file the taxes for you, but the budgeting decision comes first.