How to use the employee cost calculator
- Choose whether you are entering a yearly salary or an hourly wage, then enter the amount, the paid hours per week and the paid weeks per year.
- Enter the percentages your business adds on top of wages: payroll taxes, benefits, insurance and any retirement match. The starting values are examples, so replace them with your own.
- Enter the yearly costs that do not depend on pay, such as equipment, software, training and recruiting spread over the years you expect the person to stay.
- Read the total yearly cost, the cost per month and per paid hour, and the multiplier over wages. The table shows each piece so you can see what drives the total.
Formula
Wages = salary, or hourly wage x hours per week x paid weeks
Percentage costs = wages x each percentage / 100 (rounded to the cent)
Total yearly cost = wages + percentage costs + fixed yearly costs
Per paid hour = total / (hours per week x paid weeks)
Multiplier = total yearly cost / wages
Each percentage line is rounded to the cent before the lines are added, so the table always sums to the total shown.
Worked example
A $60,000 salary with example add-ons of 7.65% payroll taxes ($4,590), 10% benefits ($6,000), 1.5% insurance ($900) and a 3% retirement match ($1,800) comes to $73,290. Equipment of $1,500, software of $1,200 and training of $600 add $3,300.
The total is $76,590 a year, which is $6,382.50 a month. Over 2,080 paid hours (40 hours for 52 weeks) that is $36.82 per paid hour, and the multiplier over wages is 1.2765. A $25 hourly wage on the same schedule gives wages of $52,000 before any add-ons.
Why the cost is more than the pay
An employee costs more than the number on the offer letter. Employers usually pay payroll taxes on wages, may fund health coverage or other benefits, carry insurance tied to the job, and match some retirement saving. Equipment, software seats and training are added on top, and so is the time spent hiring. Seeing those pieces next to each other helps when you set a price, plan a budget or compare hiring with contracting.
Using the multiplier
The multiplier is total cost divided by wages. It is a quick way to turn a wage into a planning figure, but it only means something for the percentages you entered. Change one input at a time to see which one moves the total. For a group of people, the labor cost calculator adds overtime and headcount, and the FTE calculator converts part-time hours into full-time equivalents.
What is not included
Real payroll tax rules include wage caps, state and local taxes and rates that depend on your history, none of which a flat percentage can show. Costs such as paid leave, bonuses, overtime, severance, office space and management time are also left out unless you put them into one of the boxes. Treat the output as a planning estimate and confirm real figures with your payroll provider or accountant.
Assumptions and limits
- Every percentage is an example value that you replace. None of them is a legal rate, and none is claimed to apply to your business.
- All percentages are applied to wages only. Wage caps, state differences and tax credits are not modeled.
- Fixed yearly costs are entered as yearly amounts. One-time costs such as recruiting should be divided by the number of years you expect the person to stay.
- Money is rounded half up to the cent line by line. Per hour and per month figures are the total divided by paid hours or 12.
Frequently asked questions
What does the multiplier over wages tell me?
It is the total yearly cost divided by wages. A result of 1.2765 means every wage dollar comes with about 28 cents of other cost, given the percentages and yearly amounts you entered. It changes when you change those inputs.
Why is cost per paid hour higher than the wage?
The cost per paid hour spreads the whole yearly cost, including taxes, benefits and fixed costs, over the hours you pay for. The wage per paid hour is shown beside it for comparison.
Should paid time off be in the paid weeks?
Yes. If you pay for holidays and vacation, keep them in the paid weeks. The cost per paid hour then reflects that you pay for hours the person is not working.
How do I include a one-time hiring fee?
Divide it by the number of years you expect the person to stay and enter the result in the recruiting box. A 6,000 dollar fee for an expected three year stay is 2,000 dollars a year.