How to use the employee cost calculator
- 1Enter the annual salary you plan to pay, before the employee’s own tax and deductions.
- 2Enter your employer payroll tax and contribution rate as a percentage. The default is only an example, so replace it with the rate that applies to you.
- 3Add yearly benefits: health insurance, the pension or retirement contribution as a percentage of salary, and any other benefits.
- 4Add equipment and software per year, plus the one-off recruiting cost and how many years you expect the person to stay.
- 5Check the working hours per year, then read the total annual cost, monthly cost, cost multiplier and fully loaded hourly cost.
Why an employee costs more than their salary
The salary is only part of what you pay. On top of it come employer payroll taxes and social contributions, health cover, pension or retirement contributions, equipment, software licences and the cost of finding and training the person in the first place.
Together these often add a substantial share on top of the salary, and the amount varies widely by country, benefits package and role. Budgeting on salary alone is a common reason small businesses underestimate what a new hire will cost.
Total annual cost = Salary + Employer taxes + Benefits + Equipment + (Recruiting cost ÷ Expected years) Employer taxes = Salary × Tax rate % Pension = Salary × Pension rate %
Employer payroll taxes vary by country
In the US, employers pay their share of FICA: 6.2% Social Security (up to an annual wage limit) plus 1.45% Medicare, which is 7.65% in total. Federal and state unemployment taxes and other state charges can come on top, so your full rate may be higher.
In the UK, employers pay employer National Insurance above a threshold and usually a workplace pension contribution. EU countries often have much higher employer social contributions. These rates and thresholds change, so enter the rate that applies to your business and check it with your payroll provider or accountant. This tool applies one flat percentage to the whole salary, which is an estimate.
Cost multiplier and fully loaded hourly cost
The cost multiplier is the total cost divided by the salary. A multiplier of 1.3 means each $1 of salary costs you $1.30 in total. It is a quick way to compare hires or check a budget.
The fully loaded hourly cost spreads the total over the hours the person works in a year. Use it when pricing services or quoting jobs, so your rates cover the full cost of the people doing the work. If you lower the hours to exclude paid holidays and sick days, the hourly cost goes up, which is more realistic for billable work.
Cost multiplier = Total annual cost ÷ Salary Fully loaded hourly cost = Total annual cost ÷ Working hours per year Monthly cost = Total annual cost ÷ 12
Worked example
A US small business plans to hire someone at $60,000 a year. It uses 7.65% for employer FICA, pays $7,200 a year for health insurance, matches 4% into a retirement plan, spends $1,000 on other benefits and $2,500 a year on equipment and software, and expects $6,000 in recruiting costs over a 3-year stay.
| Salary | $60,000.00 |
| Employer taxes (7.65%) | $4,590.00 |
| Benefits ($7,200 + $2,400 + $1,000) | $10,600.00 |
| Equipment and software | $2,500.00 |
| Recruiting ($6,000 ÷ 3) | $2,000.00 |
| Total annual cost | $79,690.00 |
| Monthly cost | $6,640.83 |
| Cost multiplier | 1.33× |
| Fully loaded hourly cost (÷ 2,080) | $38.31 |
The $60,000 hire really costs about $79,690 a year, almost 33% more than the salary. At 2,080 hours, each working hour costs the business about $38.31, not the $28.85 the salary alone suggests.