A salary is only the first line of what an employee costs. Put in the pay, the monthly benefits you offer and the payroll costs your state adds, and the calculator below returns three numbers: the total annual cost, the cost for each hour the employee actually works, and the multiplier on the salary. It runs in your browser, with no account and no email.
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Calculator
What an employee really costs
Runs in your browser. Rates with a source are filled in; the rest are yours.
Total cost a year
Enter the pay to start.
Estimates for planning, not tax or payroll advice. Rates change each year and by state: check your own before you rely on a number.
How to Calculate the True Cost of an Employee
The formula has four parts, and the calculator adds them for you:
- Pay. Enter an annual salary, or an hourly wage and the paid hours per week. An hourly wage is turned into a yearly figure so everything else lines up.
- Employer payroll costs. Payroll taxes and workers’ comp insurance, entered as percentages of pay. Leave a state field empty if you do not know the rate yet, and look it up on your state workforce agency’s site.
- Benefits. Health insurance and any 401(k) match, entered as dollars per month. Add anything else you pay for, such as a phone allowance.
- One-off and yearly costs. Equipment, software seats, uniforms, licenses and training.
Add the four parts and you have the total annual cost. Divide it by the hours the employee works in a year, after paid time off and holidays, and you have the cost per hour worked. Divide the total by the salary and you have the multiplier: the number that tells you how much more than the offer letter a hire costs.
The last two numbers are the ones that matter for a decision. A salary can look affordable and the cost per hour worked can still be far above it, because you pay for holidays and sick days too.
Costs Beyond Salary
Payroll taxes
Employers pay several payroll taxes on top of wages. IRS Publication 15 says federal unemployment (FUTA) tax “isn’t withheld by you or paid by the employee”: it is yours alone. Social Security and Medicare are split: according to IRS Publication 15 for 2026, the employer pays 6.2% for Social Security and 1.45% for Medicare, and the Social Security wage base limit is $184,500. The employee pays a matching share, which comes out of the paycheck and is not an extra cost to you. FUTA itself is 6.0% of the first $7,000 of each employee’s wages, and the IRS page for Topic no. 759 says a credit of up to 5.4% is available for state unemployment tax you paid, so the calculator starts the FUTA line at 0.6% on that first $7,000. Change it if you do not qualify for the full credit.
Most states also charge employers an unemployment tax, with a rate that depends on your state and often on your own claims history. The calculator leaves that field empty on purpose. Look up your rate on your state workforce agency’s site and type it in.
Workers’ comp
Most states require employers to carry workers’ compensation insurance once they have employees. The premium is usually based on payroll and on a class code for the kind of work, so a roofer costs more to insure than an office assistant. Ask your insurance agent for a quote with the job’s real duties, and enter the percentage they give you. We do not suggest a default, because trade and state change the answer too much.
Benefits
Health insurance, a retirement match, paid time off and a phone allowance are optional for many small employers, but they affect who accepts your offer. In the calculator, enter benefits as dollars per month, so you can see what each one adds. Paid time off works differently: it does not add a bill, it adds hours you pay for and do not get. That is why the cost per hour worked is higher than the cost per hour paid.
Equipment and training
A new hire needs a computer or phone, software, uniforms or protective gear, and time to learn your way of working. Training costs include the hours of the person teaching them, which is your time or a senior employee’s. If you use field service software, each employee may need a paid seat. Our software cost calculator shows what that adds for your crew size.
Hiring Your First Employee vs a 1099 Subcontractor
For a first hire, a subcontractor looks easier: no payroll, no withholding, no workers’ comp on your policy. The trade-off is control and risk. A subcontractor sets their own hours, uses their own tools, takes on other clients and invoices you.
The IRS says the business makes the first determination of whether a worker is an employee or an independent contractor, weighing three groups of facts together: behavioral control (what you direct and how), financial control (who pays expenses and supplies tools) and the type of relationship (contracts, benefits, how permanent it is). No single factor decides it. Either you or the worker can file Form SS-8 to ask the IRS for an official decision, and the IRS says a determination may take at least six months.
In practice, the cost comparison looks like this:
- Employee: the total from the calculator above, with a lower cost per hour worked if they stay busy, and full control over schedule, methods and quality.
- Subcontractor: a higher invoice rate, no payroll costs on your side, and less control. It only works if the person really runs their own business.
If you want someone to follow your schedule, use your van and wear your logo, you are probably describing an employee. This is a general comparison and not tax advice. Ask an accountant before you decide.
Field Employees Cost More
The default employee calculator has no vehicle, fuel or tools. If the person works in the field, flip the “field employee” toggle. It switches on the extra fields: vehicle, fuel, tools, and the share of the week that can actually be billed to customers. Those fields change the answer a lot, because a technician who drives between jobs is paid for hours you cannot invoice.
Our technician cost calculator goes deeper on that side, from the billable share to the rate you need to charge to cover it. If you are choosing tools for the new hire’s schedule and dispatch, start with our guide to field service management software for small business.
What the Calculator Does Not Include
- Recruiting. Job ads, agency fees and the time you spend interviewing are real costs, but they happen once, so we left them out of the yearly total. Add them to the equipment and training line if you want to see them in year one.
- Overtime. Rules differ by state and by job, so the calculator assumes regular hours.
- Taxes and credits. Some hires qualify for credits, and some states charge extra payroll fees. Check with your accountant and your state agency.
- Turnover. Replacing an employee costs money, but it depends on how often it happens, and no honest default exists.
For sources, the figures we quote here come from the IRS pages on employment taxes, on Publication 15, and on independent contractors and employees. Check each one for the current year before you rely on a rate.
Sources
Each one opened and checked on November 10, 2026.
Questions people ask
How much does an employee really cost on top of salary?
More than the number on the offer letter, because the employer also pays payroll taxes, workers' comp insurance, any benefits it offers, and the equipment and training the job needs, and it pays for hours the employee is not working, such as paid time off and holidays. The size of the gap depends on your state, your insurance class and the benefits you choose, so we do not quote a standard percentage. Enter your own numbers in the calculator above and read the multiplier it gives you.
What payroll taxes does an employer pay?
Federal payroll taxes include the employer's half of Social Security and Medicare, and federal unemployment tax (FUTA), which IRS Publication 15 says is not withheld from the employee or paid by them. FUTA is 6.0% of the first $7,000 of wages, less a state credit of up to 5.4%. For 2026, IRS Publication 15 lists 6.2% for Social Security and 1.45% for Medicare for the employer, with a Social Security wage base of $184,500. Most states add their own unemployment tax, and some add other payroll charges. Confirm current rates with the IRS and your state agency.
Is a subcontractor cheaper than an employee?
Sometimes the invoice is higher per hour and the total cost is lower, because you skip payroll taxes, workers' comp and benefits on that worker. But cheaper only counts if the worker really is an independent contractor. The IRS looks at behavioral control, financial control and the type of relationship, and a label in a contract does not decide it. If you direct how, when and with what tools the work is done, the IRS may treat the person as an employee. This is not tax advice.