# Cost of an employee calculator

Source: https://www.getprescience.com/tools/cost-of-an-employee-calculator
Author: Rishab Jain, Cofounder and CEO, Prescience
Published: 2026-10-27
Updated: 2026-10-27
Cite as: Rishab Jain. "Cost of an employee calculator." Prescience, October 27, 2026. https://www.getprescience.com/tools/cost-of-an-employee-calculator

An employee costs more than their salary. On top of pay, the company owes 7.65% in Social Security and Medicare tax, federal and state unemployment tax, workers' compensation insurance, and whatever it spends on benefits, which for most companies means health insurance. For a $100,000 hire with typical benefits, the total is often around $116,000, or 1.16 times salary. Enter your numbers to see the full cost.

- **Employer FICA:** 7.65% (6.2% + 1.45%)
- **2026 Social Security wage base:** $184,500
- **FUTA:** 0.6% of the first $7,000 ($42)
- **Typical total:** 1.15× to 1.4× salary

## Calculate the full cost of a hire

_Interactive calculator: open the page in a browser to use it. The rules and figures it applies follow._

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

**Employer costs beyond salary, 2026**

| Cost | Rate | On what |
| --- | --- | --- |
| Social Security | 6.2% | Pay up to $184,500 |
| Medicare | 1.45% | All pay, no cap |
| Federal unemployment (FUTA) | 0.6% after the state credit | First $7,000 of pay ($42 a year) |
| State unemployment (SUTA) | Set by your state, often 1% to 4% for new employers | Your state's wage base, from $7,000 to over $70,000 |
| Workers' compensation | Under 1% of pay for office work; far more for trades | Payroll, by job class |
| Health insurance | KFF 2025 average employer share: $7,885 single, $20,143 family a year | Each enrolled employee |
| Other benefits | 401(k) match, dental, vision, life, stipends | As offered |

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

**A $100,000 engineer**

Illustrative. 2026, a state unemployment rate of 2.7% on a $7,000 wage base, workers' comp at 0.5% of pay and $650 a month in employer health benefits.

- Salary: $100,000
- Social Security and Medicare: $6,200 + $1,450 = $7,650
- FUTA and SUTA: $42 + $189 = $231
- Workers' comp: $500
- Health benefits: $650 × 12 = $7,800
- Total: $116,181

**$116,181, or 1.16× salary.** Benefits are close to half of everything above salary.

**A $60,000 hire with the same benefits**

Illustrative. The same assumptions, at a $60,000 salary.

- Salary: $60,000
- Payroll taxes: $3,720 + $870 + $42 + $189 = $4,821
- Workers' comp: $300
- Health benefits: $7,800
- Total: $72,921

**$72,921, or 1.22× salary.** Benefits cost the same at every salary, so they weigh more on lower-paid roles.

## 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](https://www.getprescience.com/tools/section-125-tax-savings-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.

> **Contractors aren't automatically cheaper:** A contractor costs no payroll tax or benefits, but misclassifying an employee as a contractor can bring back taxes, penalties and interest. See our guide to [health insurance for contractors](https://www.getprescience.com/guides/health-insurance-for-contractors).

## 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.

**What the $100,000 engineer costs per working hour**

Illustrative. The $116,181 total from the first example, with 15 days of vacation and 10 holidays.

- Paid hours: 2,080
- Less 25 days off: −200 hours
- Working hours: 1,880
- Cost per working hour: $116,181 ÷ 1,880 = $61.80

**About $62 an hour,** against a $48.08 hourly salary. A contractor quoting $70 an hour is closer in cost than it first looks.

## 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](https://www.getprescience.com/tools/health-insurance-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.

**Employee or contractor: who pays what**

| Cost | Employee (W-2) | Contractor (1099) |
| --- | --- | --- |
| Employer Social Security and Medicare | Company pays 7.65% | Contractor pays 15.3% self-employment tax |
| Unemployment taxes | Company | None |
| Workers' comp | Company | Contractor's own policy, if any |
| Health benefits | Company's choice | Contractor buys their own |
| Misclassification risk | None | Back taxes, penalties and interest |

## 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](https://www.getprescience.com/tools/employer-health-insurance-cost-calculator) breaks it down by single and family enrollment.

> **Prescience Diamond: A company health plan with an effective $0 deductible.** Diamond is usually 10–20% below comparable fully insured coverage, the biggest lever in this calculator after salary.
> - **An effective $0 deductible** and simple copays shown before a visit
> - **A broad national PPO network,** plus providers we contract with directly
> - **24/7 physician-led care navigation** that books visits and explains costs
> - **Usually 10–20% below comparable fully insured coverage,** fixed in your quote, with no admin fees
> Best for teams of about 15 or more that want one great group plan. [Get a Diamond quote](https://www.getprescience.com/get-started?p=Employer&product=diamond)

## Frequently asked questions

**How much does an employee cost on top of salary?**

Usually 15% to 40% more. Payroll taxes add about 8% for most salaries, workers' comp adds under 1% for office jobs, and health benefits add the most, often $7,000 to $20,000 a year.

**What payroll taxes does an employer pay?**

Social Security at 6.2% up to $184,500 in 2026, Medicare at 1.45% of all pay, federal unemployment (FUTA) at 0.6% of the first $7,000 after the state credit, and state unemployment at your state's rate.

**Why is FUTA only 0.6%?**

The statutory FUTA rate is 6.0%, but employers that pay state unemployment tax on time get up to a 5.4% credit. In credit reduction states the credit is smaller, so FUTA costs more.

**Do employers pay the Additional Medicare Tax?**

No. The extra 0.9% Medicare tax on pay over $200,000 is withheld from the employee only. The employer's Medicare rate stays 1.45%.

**What is the average cost of health insurance per employee?**

KFF's 2025 survey found average premiums of $9,325 for single coverage and $26,993 for family coverage, with employers paying about 84% and 74% of them.

**Is the 1.4 times salary rule accurate?**

It's a rough planning figure. The real multiplier depends on salary, benefits and state. It's often 1.15 to 1.25 for well-paid roles with single coverage and higher for lower-paid roles with family coverage.

## Sources

- [IRS Publication 15 (Circular E), Employer's Tax Guide (FICA and FUTA rates)](https://www.irs.gov/publications/p15)
- [Social Security Administration, Contribution and benefit base](https://www.ssa.gov/oact/cola/cbb.html)
- [IRS Topic 759, Form 940 and FUTA credit](https://www.irs.gov/taxtopics/tc759)
- [U.S. Department of Labor, FUTA credit reductions](https://oui.doleta.gov/unemploy/futa_credit.asp)
- [KFF, 2025 Employer Health Benefits Survey](https://www.kff.org/health-costs/2025-employer-health-benefits-survey/)