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

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What to know before calculating employee hiring costs:

Expect the true cost of an employee to be 1.25 to 1.4 times their base salary once you factor in taxes and benefits.
According to the Society for Human Resource Management (SHRM), the average hard cost to hire is around $4,700, but specialized roles can easily climb into the five figures.
Beyond gross wages, employers must pay 7.65% in FICA taxes (Social Security and Medicare), plus state and federal unemployment insurance.
Onboarding a new hire involves soft costs (training and lost productivity) that can account for up to 60% of total hiring expenses.

If you hire a $ 60,000-a-year employee, your business doesn’t just lose $5,000 a month. Between employer-paid taxes, workers’ comp, and benefits, that simple hire can quickly become an $80,000 annual commitment.

For a small business, failing to account for this 25% to 40% burden can hurt your profit margins.

To hire with confidence, you need to see the full financial picture. Scroll down to use our free employee cost calculator below. Instead of guessing at tax rates and benefit premiums, simply plug in your numbers and let the tool do the heavy lifting for you.

TAXES AND BOOKKEEPING

Employee cost calculator

For every business, the cost of an employee eclipses 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 to determine an employee’s gross wages in addition to other employee-related expenses. These include payroll taxes, which cover local, state, and federal taxes, which include Social Security, Medicare, and unemployment. The true cost of an employee also includes the cost of benefits, such as health insurance and paid time off, along with other ancillary expenses such as meals or supplies. Overhead expenses , such as required technology or office space, also figure into the calculation.

Determining the amount of taxes, benefits, overhead expenses associated with hiring an employee helps you set your prices high enough to cover these costs. It can also help you with business planning, so you can determine when it's the right time to hire a new employee.

The true cost of an employee calculator can help you estimate how much an employee will cost your small business, taking into consideration 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.

Pay information

Pay type

HourlySalary

Employee’s hourly rate

Hours worked per week

Tax information

Taxes vary by state. Tell us where you do business so we can accurately calculate your costs.

State

This calculation assumes that both the employee and the employer are within the same state. New employer rates for unemployment insurance tax not included.

Benefits information

Are you contributing to your employee’s retirement plan?

YesNo

How much will you contribute to your employee’s retirement this year?

The estimated employee cost does not take into account brokerage or record keeping fees.

The estimated employee cost does not take into account brokerage or recordkeeping fees.

YesNo

Employer contribution, per year:

Health

Dental

Vision

In 2023, the average annual premiums for employer-sponsored health insurance are $8,435 for single coverage and $23,968 for family coverage, according to KFF polling .

Any additional expenses to include? Leave blank if not.

These could include paid time off, vacation days, sick days, parental leave, a health savings account, bonuses, profit-sharing, a new laptop, a desk, clothing with the business logo, gifts, etc.

Expense name

Annual contribution

All done!

Estimated annual employee cost*

$0.00

Estimated annual employee cost*

$0.00

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Additional factors that can impact employee costs

While our employee cost 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:

Breakdown of common employer-paid costs

To help you visualize where the money goes beyond the base salary, refer to this breakdown of typical employer expenses:

A general rule of thumb is that an employee's actual cost is typically 1.25 to 1.4 times their base salary. For example, a $ 60,000-a-year employee may actually cost your business between $75,000 and $84,000.

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 significantly affects employee costs. 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.

Research the state and local tax regulations in your operating locations. These can significantly alter your payroll tax obligations.

Market conditions

Hiring costs will always fluctuate with economic conditions and the demand for specific 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.

Research the trends in your specific market and industry to get the most accurate information on the cost of an employee. A software engineer, for example, will command a higher salary on average than a construction worker.

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 the role you're hiring for before calculating the 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.

Consider implementing a standardized onboarding process to minimize initial costs and ensure a smooth transition for new employees.

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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

Federal, state, and local income taxes (if applicable), as well as unemployment taxes are included here. 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.

Example calculation: The $60k Employee

Base Salary: $60,000

Taxes (approx 9%): $5,400
Benefits (Health/Dental): $7,000
Retirement Match (3%): $1,800
Equipment/Onboarding: $2,000
Total True Cost: $76,200

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/

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