Employer Cost Calculator

The True Cost of Hiring an Employee

When a business offers someone a $75,000 salary, the actual cost to the employer is significantly higher. Between mandatory payroll taxes, unemployment insurance, workers' compensation, health benefits, and retirement contributions, the true cost of an employee typically ranges from 1.25 to 1.4 times their base salary. Understanding these costs is critical for budgeting, pricing your products or services, and making informed hiring decisions.

Mandatory Employer Payroll Taxes

Every employer in the United States is required to match the employee's FICA contributions. This means paying 6.2% of wages for Social Security (up to the annual wage base of $168,600 for 2024) and 1.45% for Medicare on all wages with no cap. Unlike employees, employers do not pay the additional 0.9% Medicare surtax on high earners. Combined, the employer FICA match alone adds 7.65% to the cost of most employees.

Unemployment Insurance: FUTA and SUTA

The Federal Unemployment Tax Act (FUTA) imposes a 6.0% tax on the first $7,000 of each employee's wages. However, employers who pay their state unemployment taxes on time receive a credit of up to 5.4%, reducing the effective FUTA rate to just 0.6%. State Unemployment Tax (SUTA) rates vary widely based on the state, the employer's industry, and their claims history. New employers typically receive a default rate, which adjusts over time based on the number of former employees who file unemployment claims.

Workers' Compensation Insurance

Workers' compensation is required in almost every state and covers medical costs and lost wages for employees injured on the job. Rates depend on the type of work being performed, with office workers paying much less than construction or manufacturing employees. The national average is roughly $1.00 per $100 of payroll, but high-risk occupations can pay several times that amount.

Health Insurance and Retirement Benefits

Employer-sponsored health insurance is one of the largest benefit costs. According to the Kaiser Family Foundation, the average annual employer contribution for family coverage exceeded $17,000 in recent years. Retirement plan matching — commonly structured as matching 50% of employee contributions up to 6% of salary — adds another 3% or more of payroll. These benefits are often essential for attracting and retaining talent, making them a practical necessity rather than an optional expense.

Why This Matters for Small Businesses

Small business owners often underestimate the burden of employer costs when setting their first salaries. If you are hiring your first employee at $60,000, expect to budget at least $75,000 to $84,000 in total compensation costs. Use this calculator to model different scenarios and ensure your hiring plan aligns with your revenue projections. Understanding employer costs is also valuable when negotiating contracts, bidding on projects, or setting consulting rates to ensure you cover the full expense of your workforce.