True Cost of an Employee Calculator
Between 1.25 and 1.4 times salary is the usual range. Anyone budgeting a hire from the salary alone is short by that difference.
Real cost
$77,500.00a year
- Total annual cost
- $77,500.00
- On top of salary
- $17,500.00
- Multiple of salary
- 1.29x
- Cost per hour
- $37.26
- Cost per month
- $6,458.33
- This employee costs 1.29x of their salary. Between 1.25 and 1.4 is the usual range, and anyone budgeting a hire from the salary alone is short by that difference.
- The hourly figure is the one to use when deciding whether to hire, outsource or leave work undone. It is usually a good deal higher than people expect, which is what makes it useful.
- Not included: recruitment, equipment, software licences, training, the desk they sit at, and the time other people spend managing them. Put anything you can quantify in the "other" field.
About the true cost of an employee
A $60,000 salary is not a $60,000 cost. Employer payroll taxes, pension or retirement contributions, health cover, insurance and everything else bought per head sit on top. At 10% employer taxes with $9,000 of benefits and $2,500 of other costs, the real figure is $77,500 — a multiple of 1.29.
That multiple is the number worth carrying around. It varies by country and by benefit package, but 1.25 to 1.4 covers most situations, and it means a hiring budget set at the salary is roughly a third short before anyone starts.
The hourly figure is the more useful one for decisions. At $37.26 an hour, the question of whether to hire, outsource or leave work undone becomes answerable — and the answer is often different from what the salary alone suggests. It is also the right basis for pricing work internally.
What is not in this: recruitment fees, equipment, software licences, training, the desk they sit at, and the time other people spend managing them. Recruitment alone can be 15 to 25 per cent of first-year salary through an agency. Put whatever you can quantify into the "other" field, because it belongs in the total.
None of which is an argument against hiring. It is an argument for knowing the number before committing to it, since the gap between salary and cost is where hiring budgets quietly fail.
What it works out
- Total annual cost including taxes and benefits
- The multiple on base salary
- Cost per hour and per month
The formula
Cost = Salary + (Salary × Employer tax) + Benefits + Other
Addition, with one percentage. $60,000 salary, $6,000 of employer taxes at 10%, $9,000 of benefits and $2,500 of other costs gives $77,500.
Dividing by the salary gives 1.29 — the multiple, and the figure to keep in mind rather than the total. It travels between salary levels far better than an absolute overhead does, because most of the overhead scales with pay.
Dividing by 2,080 hours gives $37.26 an hour, which is the number for decisions. Whether a task is worth doing internally, what to charge for it, whether a contractor at $60 an hour is expensive — all of those need the fully loaded hourly cost rather than the salary.
Note that 2,080 hours is hours paid rather than hours worked. Using actual productive hours — after holiday, sickness and everything that is not the job — raises the effective figure substantially, and for internal pricing that is arguably the more honest basis.
- Salary
- Base annual pay before anything else.
- Employer taxes
- Payroll taxes and social contributions the employer pays on top.
- Benefits
- Health cover, pension contributions, insurance.
- Other
- Equipment, software, training, space. Anything bought per head.
A worked example
A $60,000 salary with 10% employer taxes, $9,000 of benefits and $2,500 of other costs.
That works out to $77,500.00 a year.
- Total annual cost
- $77,500.00
- On top of salary
- $17,500.00
- Multiple of salary
- 1.29x
- Cost per hour
- $37.26
- Cost per month
- $6,458.33
Questions
How much does an employee really cost?
Typically 1.25 to 1.4 times base salary. A $60,000 salary with 10% employer taxes, $9,000 of benefits and $2,500 of other costs comes to $77,500 — a multiple of 1.29.
What is the employee cost multiple?
Total cost divided by base salary. It is more portable than an absolute overhead figure because most of the overhead scales with pay, so the same multiple works across salary levels.
What should I include?
Employer payroll taxes, pension and retirement contributions, health cover, insurance, equipment, software licences, training and space. Recruitment too — agency fees run 15 to 25 per cent of first-year salary.
Why does the hourly figure matter?
Because it makes decisions answerable. At $37.26 an hour you can compare doing work internally against outsourcing it or not doing it, which the salary alone does not support.
Should I use hours paid or hours worked?
2,080 is hours paid. Using actual productive hours — after holiday, sickness and everything that is not the job — gives a higher and arguably more honest figure for internal pricing.
Are contractors cheaper?
Per hour they usually look dearer and are frequently not, once this multiple is applied. They also carry no notice period or ongoing commitment. Against that, they take institutional knowledge with them when they go.
What is a typical employer tax rate?
It varies enormously by country and sometimes by state, and it changes with budgets — which is why it is a field here rather than a published figure. Your payroll provider or accountant will have your own number.