What Does an Employee Really Cost?
When budgeting for new hires, many business owners only consider the base salary. But the true cost of an employee goes well beyond wages. Employer payroll taxes, benefits, and other costs can add 25-40% or more to the base salary.
- Calculate employer FICA taxes (Social Security + Medicare)
- Include FUTA and SUTA unemployment taxes
- Add health insurance, 401(k) matching, and other benefits
- See true hourly, monthly, and annual costs
Use this calculator to understand your total employment costs and make informed hiring decisions.
Frequently Asked Questions
What taxes do employers pay on employees?
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Employers pay several taxes: Social Security (6.2% up to the $176,100 wage base in 2025), Medicare (1.45% with no cap), FUTA (6% on first $7,000, reduced to 0.6% with state credits), and SUTA (varies by state, typically 2-5% on varying wage bases). Combined, these add 7.65% to 12%+ to base wages.
What is FUTA and how is it calculated?
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FUTA (Federal Unemployment Tax Act) funds federal unemployment programs. The gross rate is 6% on the first $7,000 of wages per employee. Employers paying SUTA on time receive up to a 5.4% credit, reducing effective FUTA to 0.6%. Maximum FUTA per employee: $7,000 x 0.6% = $42 annually.
What is SUTA and why does it vary by state?
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SUTA (State Unemployment Tax Act) funds state unemployment benefits. Rates vary because each state sets its own rates, wage bases ($7,000 to $62,500+), and experience rating systems. New employers pay standard rates (often 2.7-3.4%), while established employers' rates adjust based on layoff history.
What is the true cost of an employee beyond salary?
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True cost ranges from 1.25x to 1.4x base salary. Beyond wages: FICA (7.65%), FUTA (~$42), SUTA (varies), health insurance ($7,000-$15,000/year), 401(k) matching (3-6%), workers' comp (0.5-5%+), paid time off, and other benefits. A $50,000 salary typically costs $62,500-$70,000 total.
Are there ways to reduce employer payroll costs?
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Yes: Maintain good experience rating to lower SUTA, claim Work Opportunity Tax Credit (WOTC), use Section 125 cafeteria plans for pre-tax benefits, implement HSA/FSA programs, take advantage of retirement plan tax credits, ensure proper worker classification, and work with a tax professional to maximize deductions.
How do I calculate true hourly cost?
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Divide total annual cost by working hours (typically 2,080 for full-time). Example: $50,000 salary + $3,825 FICA + $42 FUTA + $500 SUTA + $7,200 health + $1,500 401k = $63,067 total. $63,067 / 2,080 = $30.32/hour true cost vs. $24.04/hour base rate.
