Employee cost calculator: How much does it cost to hire?

For every business, the cost of an employee is more than the sum of their wages. But how do you figure out exactly how much a new or existing employee costs?

A payroll cost calculator, often called a workers calculator, employment cost calculator, or labor cost calculator, can help you determine an employee’s gross wages and other employee expenses. 

These include payroll taxes, which cover local, state, and federal taxes, like Social Security, Medicare, and unemployment. The true cost of an employee also considers overhead expenses, the cost of benefits (such as health insurance and paid time off), and other ancillary expenses, like employee meals or supplies. 

Determining the full cost of hiring an employee helps you set your prices high enough to cover these costs. It can also help you with business planning decisions, like when it's the right time to hire a new employee.

Free employee cost calculator

An employee calculator can help you estimate how much an employee will cost your small business, considering the different payroll taxes in each of the 50 states. Determine how much your new employee would cost, beyond their standard wages. Simply plug in the requested information into the fields below to determine how much an employee will cost your business.

Additional factors that can impact employee costs 

While our calculator above provides a solid estimate of basic pay and payroll taxes, it's not quite the full picture. 

A few other highly variable elements can influence the overall cost of an employee for your business, so keep the following factors in mind: 

Employee benefits

The cost of employee benefits to an employer can be a significant portion of the total compensation package. This includes health insurance, retirement plan contributions, paid time off (vacation, sick leave), dental and vision coverage, life insurance, and disability insurance. 

The specific benefits you offer and your contribution level will directly impact the cost of each employee. 

Location

Business location is one of the most important decisions you'll make when starting a business, and it plays a significant role in employee cost. State and local tax rates for unemployment insurance and other levies vary considerably. General living costs can also influence potential hires' salary expectations in a specific area.

Market conditions

Hiring costs will always fluctuate based on economic conditions and the demand for particular skills. In a tight labor market, attracting and keeping skilled employees may require increased compensation and better benefits. On the other hand, during economic downturns, the labor market might be more favorable to employers.

Industry & role type

Different industries and roles will have different compensation standards. For example, a highly specialized technical role in SaaS will likely command a higher salary than an entry-level administrative position. You'll want to research the industry and role you want to hire for before calculating salary. 

Recruiting & onboarding costs

Hiring a new employee can be expensive. Recruitment costs can include advertising job openings, using recruitment agencies, background checks, and your team's time on the hiring process. Onboarding costs, such as training materials and initial supervision, also contribute to the overall cost of a new hire.

How to calculate your total employee cost

Now that you know what goes into hiring a new employee, let's cover how to calculate those costs, starting with our handy calculator above. 

Here are the steps to determining total employee cost: 

• Step 1: Calculate gross wages. This is the employee's base pay before any deductions. For hourly employees, multiply their hourly rate by the hours worked. For salaried employees, this is their annual salary divided by the number of pay periods.
• Step 2: Factor in payroll taxes: This includes federal, state, and local income taxes (if applicable), as well as unemployment taxes. Remember that you and the employee typically contribute to some of these taxes. (For steps 1 and 2, use the calculator above). 
• Step 3: Add benefits. Determine the total annual cost of all benefits you provide, such as health insurance premiums, retirement contributions, paid time off, and other perks. Add this to the number you reached above. 
• Step 4: Add other expenses. Now, add any other costs associated with the employee, such as training, travel expenses, supplies, or predicted bonuses. 
• Step 5: Calculate cost. Finally, add all the figures from the previous steps to arrive at the total annual cost of an employee. 

Hiring the right people for your small business

From wages and taxes to benefits and overhead, understanding the true cost of an employee is a critical step in growing and scaling your business. This knowledge empowers you to budget effectively and hire with intention.

If you already have the best talent and are ready to scale, start strong by simplifying your employee management with integrated payroll software. It makes paying your team simple and frees you to focus on what really matters—growing your business.

Disclaimers:

QuickBooks Online Payroll & Contractor Payments: Money movement services are provided by Intuit Payments Inc., licensed as a Money Transmitter by the New York State Department of Financial Services, subject to eligibility criteria, credit and application approval. For more information about Intuit Payments Inc.’s money transmission licenses, please visit https://www.intuit.com/legal/licenses/payment-licenses/