Cost of an employee calculator

Calculate the full cost of a hire

The calculator uses 2026 federal rates and the state unemployment rate and wage base you enter. It leaves out costs that vary too much to estimate, like recruiting fees, equipment and office space; add those under other yearly costs if you want them in the total.

What goes into the cost of an employee

Payroll taxes are fixed by law. Benefits are the part you choose, and for most small companies health insurance is the largest cost after salary. At KFF's 2025 averages, the employer's share of family coverage is about $20,000 a year, which can be more than all the payroll taxes on a $150,000 salary combined.

Worked examples

Is 1.25 to 1.4 times salary a good rule of thumb?

You'll often hear that an employee costs 1.25 to 1.4 times their salary. That's a reasonable planning range for companies with rich benefits, family coverage and a 401(k) match. A lean startup paying high salaries with single coverage can land closer to 1.15. A company with many hourly workers, family coverage and high workers' comp rates can go past 1.4.

The multiplier falls as salary rises for two reasons: health premiums are a flat dollar amount, and Social Security stops at $184,500 of pay in 2026. Above that, only the 1.45% Medicare tax continues. For budgeting, I'd use the calculator for each role you plan to hire instead of one multiplier for everyone.

Ways to lower the cost without cutting pay

• Run employee premiums through a Section 125 plan. Premium contributions come out before tax, which saves the company 7.65% on those dollars. The Section 125 calculator shows the savings.
• Shop the health plan, not just the carrier. Plan design and funding matter more than the logo. A 10% lower premium on $7,800 a year saves $780 per employee.
• Use an HSA-qualified plan with employer contributions. HSA contributions through payroll are free of FICA for both sides.
• Check your state unemployment rate each year. New employers get a default rate; after a few years without layoffs, many companies qualify for a lower one.
• Classify jobs correctly for workers' comp. Office staff misfiled under a field classification can cost several times more.

The real hourly cost of an employee

To compare an employee with a contractor or an agency, convert the total to an hourly figure. A full-time year is 2,080 paid hours, but nobody works all of them: after two weeks of vacation and ten holidays, a typical employee works about 1,920. Dividing the total cost by working hours gives the number to compare.

Budgeting for a hire's first year

• Unemployment taxes come early. FUTA and most state unemployment taxes apply only to the first $7,000 or so of each person's pay, so most of a year's cost lands in the first few paychecks, then stops.
• Benefits may start later. If your plan has a waiting period, benefits begin after it. The waiting period calculator shows the latest allowed start date.
• Social Security stops at the wage base. For salaries above $184,500, the 6.2% tax stops partway through the year, so later paychecks cost less.
• One-time costs add up. Recruiting fees are often 15% to 25% of first-year salary through an agency, plus a laptop, software seats and onboarding time.
• Raises and renewals. Plan for next year's salary increase and a health renewal; employers in Mercer's 2026 survey expected benefit costs to rise 8.2% for 2027.

Common mistakes when budgeting a hire

• Using single-coverage premiums for everyone. If a hire has a spouse and children, the company's share of family coverage can be $12,000 or more above single coverage. Ask during the offer process, or budget the average for your team.
• Forgetting state payroll taxes beyond unemployment. Some states add paid family leave, disability or training taxes on the employer side. Check your state's payroll tax notice.
• Leaving out the employer 401(k) match. A 4% match on $100,000 is $4,000 a year, more than workers' comp and unemployment combined in most states.
• Treating the multiplier as fixed. It changes with salary, family status and state, so use one calculation per role rather than one multiplier for the whole hiring plan.

A simple habit helps: when you open a role, run it through this calculator with the salary band's midpoint and your average benefits cost, and put that figure, not the salary, in the hiring plan. It keeps the budget honest when several hires land in the same quarter.

Health insurance is the cost you can shape

Payroll taxes are fixed, but health benefits come down to choices: which plan, how much the company pays and how the plan is funded. For a 10-person team, the difference between an average plan and a well-priced one can be $10,000 to $20,000 a year. Our employer health insurance cost calculator breaks it down by single and family enrollment.