What is the true cost of an employee?
Salary or wages are only the starting point. Employers also pay payroll taxes, fund benefits, and cover tools and space.
Payroll tax = Base pay × Employer payroll tax %
Ongoing annual cost = Base pay + Payroll tax + Benefits + Overhead
Fully-loaded hourly = Ongoing annual cost ÷ (Hours/week × 52)
Year-1 total = Ongoing annual cost + Recruiting / onboarding
Example
A role pays $60,000 a year. Employer FICA at 7.65% is $4,590.
What to include
- Employer payroll taxes. The federal employer share of Social Security and Medicare is 7.65%. Many employers also pay FUTA and state unemployment (SUTA); add those into the payroll-tax field if you know them.
- Benefits. Health premiums the company pays, retirement match, HSA contributions, life or disability insurance, and similar.
- Overhead. Laptop, software seats, phone, training, and a share of rent or coworking—costs that exist because the person is on the team.
- Recruiting (optional). Job ads, agency fees, or signing bonuses. They are one-time, so they sit in the year-1 total, not the ongoing monthly figure.
To see what the employee takes home after their own taxes, use the paycheck calculator. Freelancers pricing their own time should use the freelance hourly rate calculator instead.
Frequently asked questions
Why is the default payroll tax 7.65%?
That is the standard employer share of FICA (6.2% Social Security + 1.45% Medicare). It does not include FUTA, SUTA, or workers' compensation. Raise the percentage if you want those in the estimate.
Should PTO be a separate line?
Paid time off is usually already inside base pay: you pay the salary whether the person is in the office or on vacation. The fully-loaded hourly cost still divides by scheduled hours for the year, which is the usual planning approach.
How is this different from a freelancer's rate?
This calculator is the employer's cost for a W-2 hire. A freelancer's rate has to cover their own taxes, benefits, overhead and non-billable time—see the freelance hourly rate calculator for that.