The real cost of an employee
An employee’s salary is only part of what they cost. Employers also pay payroll taxes, unemployment insurance, workers’ compensation and benefits. As a rule of thumb, the total is often 1.25 to 1.4 times the salary.
Employer payroll taxes in 2026
| Tax | Rate | Wage base |
|---|---|---|
| Social Security | 6.2% | up to $184,500 |
| Medicare | 1.45% | no limit |
| FUTA (federal unemployment) | 0.6% after state credit | first $7,000 |
| SUTA (state unemployment) | varies by state and employer | varies |
The additional 0.9% Medicare tax on wages above $200,000 is paid only by the employee. FUTA can be higher in credit reduction states.
Worked example
A $60,000 salary, a 2.7% SUTA rate on $7,000, $8,000 of benefits, a 3% retirement match and 1% workers’ comp:
- Social Security: 60,000 × 6.2% = $3,720.
- Medicare: 60,000 × 1.45% = $870.
- FUTA: 7,000 × 0.6% = $42; SUTA: 7,000 × 2.7% = $189.
- Workers’ comp: $600.
- Benefits: $8,000; retirement match: $1,800.
- Total: $75,221, or 1.25 times the salary, about $36.16 per hour over 2,080 hours.
Benefits are the big variable
Employer-sponsored health insurance is often the largest cost after salary. Employers typically pay most of the premium, which for family coverage can exceed $20,000 a year. Other benefits include dental and vision coverage, life and disability insurance, paid time off, retirement contributions, education assistance and equipment.
Other costs not in the calculator
- Recruiting and onboarding costs.
- Office space, software licenses and equipment.
- Payroll processing and HR administration.
- Paid leave, which is already in the salary but reduces hours actually worked.
Employee or contractor?
Hiring an independent contractor avoids payroll taxes and benefits, but the classification depends on how the work is controlled, not on what the contract says. Misclassification can lead to back taxes and penalties from the IRS and state agencies.
This calculator gives estimates for education and planning. It is not investment, tax or legal advice; for decisions about your own situation, talk to a qualified financial professional.