Employee Cost Calculator
Work out the true cost of an employee, including 2026 employer payroll taxes, benefits, and overhead, then see your cost per productive hour and your labor cost percentage.
Total annual cost of this employee
$56,177.40
1.35x base pay of $41,600.00
Cost multiplier
1.35x
Per paid hour
$27.01
2,080 paid hours
Per productive hour
$29.02
1,936 hours after time off
- Base pay: 74.1%
- Payroll taxes and workers' comp: 6.8%
- Benefits: 13.8%
- Overhead: 5.3%
| Cost component | Formula | Annual cost |
|---|---|---|
| Base pay | Hourly rate x hours per week x 52 | $41,600.00 |
| Social Security (employer) | 6.2% of pay up to $184,500 | $2,579.20 |
| Medicare (employer) | 1.45% of all pay | $603.20 |
| FUTA | 0.6% of the first $7,000 | $42.00 |
| State unemployment (SUTA) | 2.7% of the first $7,000 | $189.00 |
| Workers' compensation | 1% of pay | $416.00 |
| Health insurance | Monthly employer premium x 12 | $6,000.00 |
| Retirement match | 3% of pay | $1,248.00 |
| Other benefits | Annual amount | $500.00 |
| Overhead (equipment, software, space) | Annual amount | $3,000.00 |
| Total annual cost | $56,177.40 | |
Cost per productive hour = total cost ÷ (paid hours − (PTO days + holidays) x hours per day). Estimates only; your state rates, insurance carrier, and benefit plans set the real figures.
Labor cost percentage = total labor cost ÷ revenue for the same period x 100. Enter your total labor cost, or leave it blank to use the employee cost from the first tab multiplied by your headcount.
Leave blank to use the first tab x headcount.
Labor cost percentage
37.5%
$561,774.00 labor cost on $1,500,000.00 revenue. Revenue per labor dollar: $2.67
Know what an hour of work costs, then make sure you pay only for hours actually worked. HiveDesk tracks time automatically.
Track it automatically →How to Calculate the True Cost of an Employee
A wage or salary is the number on the offer letter, but it is not what the employee costs. Every person on payroll also brings employer taxes that the employee never sees on their pay stub, insurance the law requires, benefits the company chooses to offer, and the equipment and space they need to do the job. Adding those together gives the fully loaded cost, sometimes called the true cost or burdened cost of an employee.
The calculator above follows a simple structure. It starts from annual base pay, adds each cost that scales with pay as a percentage, adds the costs that are flat dollar amounts, and then divides the total by the hours you pay for and the hours the person actually works.
The Employee Cost Formula
Base pay = Hourly rate x Hours per week x 52 (or the annual salary)
Total cost = Base pay + Employer payroll taxes + Workers' comp + Benefits + Overhead
Cost multiplier = Total cost ÷ Base pay
Cost per paid hour = Total cost ÷ Paid hours
Cost per productive hour = Total cost ÷ (Paid hours − Days off x Hours per day)
Worked example: a $20/hour employee
These are the calculator's default inputs, so you can check every line against the widget. The employee earns $20 an hour for 40 hours a week, which is $41,600.00 a year over 2,080 paid hours. The company pays the standard 0.6% FUTA rate, a 2.7% state unemployment rate on a $7,000 wage base, 1% of pay for workers' compensation, $500 a month toward health insurance, a 3% retirement match, $500 of other benefits, and $3,000 of overhead. The employee has 10 days of paid time off and 8 paid holidays.
| Component | Calculation | Annual cost |
|---|---|---|
| Base pay | $20 x 40 x 52 | $41,600.00 |
| Social Security | $41,600 x 6.2% | $2,579.20 |
| Medicare | $41,600 x 1.45% | $603.20 |
| FUTA | $7,000 x 0.6% | $42.00 |
| SUTA | $7,000 x 2.7% | $189.00 |
| Workers' comp | $41,600 x 1% | $416.00 |
| Health insurance | $500 x 12 | $6,000.00 |
| Retirement match | $41,600 x 3% | $1,248.00 |
| Other benefits | Flat amount | $500.00 |
| Overhead | Flat amount | $3,000.00 |
| Total annual cost | $56,177.40 | |
The total is $56,177.40, which is 1.35 times base pay. Spread across 2,080 paid hours, each hour costs $27.01, not $20. The employee is away for 18 paid days, or 144 hours, so they are at work for 1,936 hours. Each of those hours costs $29.02.
None of these defaults are national averages. They are reasonable starting points for a small business so the arithmetic is easy to follow. Replace each one with the figures from your payroll provider, your state unemployment notice, your workers' comp policy, and your benefits invoices to get your own number.
Employer Payroll Taxes Explained (2026)
Payroll taxes are the part of employee cost you cannot negotiate. Federal rates are the same for every employer; state unemployment tax and workers' compensation depend on where the employee works and what they do.
FICA: Social Security and Medicare
Employers match the employee's FICA contribution. In 2026 the employer pays 6.2% Social Security tax on wages up to $184,500 and 1.45% Medicare tax on all wages, for a combined 7.65% on most paychecks. Once an employee's pay for the year passes the Social Security wage base, the 6.2% stops and only Medicare continues, which is why the multiplier falls for high earners.
The 0.9% Additional Medicare Tax on wages above $200,000 is withheld from the employee's pay only. Employers must withhold it, but there is no employer match, so the calculator leaves it out of employer cost.
FUTA: federal unemployment tax
The Federal Unemployment Tax Act sets a 6.0% tax on the first $7,000 paid to each employee in a year. Employers that pay their state unemployment tax in full and on time get a credit of up to 5.4%, so the usual net rate is 0.6%, or $42 per employee per year. FUTA is paid by the employer only and is never withheld from wages.
The exception is a credit reduction state: one that borrowed from the federal government to pay unemployment benefits and has not repaid the loan. Employers there receive a smaller credit and owe more FUTA. For 2025, California's credit was reduced by 1.2%, which adds $84 per employee (a 1.8% net rate). The list for each year is final in November and appears on Schedule A of Form 940, so raise the FUTA rate in the calculator if your state is on it.
SUTA: state unemployment tax
Every state runs its own unemployment insurance program, and each one sets a taxable wage base and assigns each employer a rate. New employers usually get a standard new-employer rate; established employers get an experience rate based on how many former employees have claimed benefits. Wage bases range widely: California taxes the first $7,000 of each employee's pay, while Washington taxes the first $78,200 in 2026. Your state sends a rate notice each year; use that rate and your state's wage base in the calculator. A few states also collect a small employee contribution, which is not an employer cost.
Workers' compensation insurance
Workers' comp is insurance rather than a tax, but almost every state requires employers to carry it, so it behaves like one. Premiums are priced per $100 of payroll by job classification: office and clerical work sits at the low end, while construction, roofing, and trucking cost many times more. A rate of $1.00 per $100 of payroll equals 1% in the calculator. Your policy declarations page lists the rate for each class code.
Benefits and Overhead
Benefits are usually the largest cost after wages. The Bureau of Labor Statistics Employer Costs for Employee Compensation survey found that for private-industry workers in June 2026, wages averaged $32.82 an hour and benefits $14.07, for total compensation of $46.89 per hour worked. Benefits made up 30.0% of compensation for all private-industry workers and 31.5% for full-time workers. For full-time workers, paid leave alone was 8.1% of compensation and legally required benefits (Social Security, Medicare, unemployment insurance, and workers' comp) were 7.0%.
Those national averages include large employers with generous plans, so a small business can sit well above or below them. Three inputs cover most benefit spending:
- Health insurance. Enter only the employer's share of the monthly premium, not the employee's payroll deduction. Family coverage costs much more than single coverage, so use an average across your team if you are budgeting for a role you have not filled.
- Retirement match. Enter the percentage of pay you contribute to a 401(k) or similar plan. If employees do not all participate, use the average match you actually pay rather than the plan maximum.
- Other benefits. Life and disability insurance, phone or internet stipends, training budgets, wellness programs, and bonuses that are not part of base pay.
Overhead is the cost of giving someone a place to work: a laptop and headset spread over their useful life, software licenses, office or co-working space, and a share of IT support. For a remote employee it may be little more than hardware and software seats; for an on-site employee in a leased office, space is often the largest piece. Overhead is optional in the calculator, but leaving it out understates the cost of every hire.
Why Productive Hours Matter
A full-time employee is paid for 2,080 hours a year, but they are not working for all of them. Paid vacation, sick days, and holidays are hours you pay for with no output. In the worked example, 18 paid days off remove 144 hours, so the cost per productive hour ($29.02) is higher than the cost per paid hour ($27.01).
The calculator stops at paid time off and holidays because those are easy to count. In practice the gap is wider. Paid breaks, team meetings, training, onboarding, and idle time between tasks all reduce the hours spent on billable or customer-facing work. In a contact center, the share of paid time agents spend handling contacts is called occupancy or utilization, and it is one of the main levers on cost per contact.
The cost per productive hour is the number to use when you price services, quote a client project, or compare an in-house hire against outsourcing. If you bill a client $35 an hour for work that costs you $29.02 per productive hour, your margin is much thinner than a comparison with the $20 wage suggests.
To count the days for your own team, use the PTO accrual calculator to see how much time off each employee earns, and the work days in a year calculator to see how many working days and holidays fall in a given year.
What an Employee Costs at Common Wages
Every row uses the same assumptions as the calculator's defaults: 40 hours a week, a 2.7% SUTA rate on the first $7,000, 1% workers' comp, $500 a month for health insurance, a 3% retirement match, $500 of other benefits, and $3,000 of overhead, with 10 PTO days and 8 holidays. Salaried rows assume 40 hours a week for the hourly figures.
| Pay | Base pay | Total annual cost | Multiplier | Per paid hour | Per productive hour |
|---|---|---|---|---|---|
| $15/hour | $31,200 | $44,566 | 1.43x | $21.43 | $23.02 |
| $18/hour | $37,440 | $51,533 | 1.38x | $24.78 | $26.62 |
| $20/hour | $41,600 | $56,177 | 1.35x | $27.01 | $29.02 |
| $25/hour | $52,000 | $67,789 | 1.30x | $32.59 | $35.01 |
| $30/hour | $62,400 | $79,401 | 1.27x | $38.17 | $41.01 |
| $50,000 salary | $50,000 | $65,556 | 1.31x | $31.52 | $33.86 |
| $75,000 salary | $75,000 | $93,469 | 1.25x | $44.94 | $48.28 |
| $100,000 salary | $100,000 | $121,381 | 1.21x | $58.36 | $62.70 |
| $200,000 salary | $200,000 | $232,070 | 1.16x | $111.57 | $119.87 |
The multiplier falls as pay rises, from 1.43x at $15 an hour to 1.27x at $30 an hour. Health insurance, overhead, FUTA, and SUTA on a low wage base are fixed dollar amounts, so they are a bigger share of a smaller paycheck. At a $200,000 salary the multiplier drops to 1.16x, partly because Social Security tax stops at the $184,500 wage base.
This is why a single multiplier applied to every role is only a rough guide. The right multiplier for your business depends on your benefits package, your state, and your mix of wages, so run each role through the calculator rather than reusing one figure for the whole team.
Labor Cost Percentage
Labor cost percentage shows how much of each dollar of revenue goes to paying the people who earn it. It is the second tab of the calculator.
Labor cost percentage
(Total labor cost ÷ Revenue) x 100
For example, ten employees at the worked-example cost of $56,177 each is $561,774 of labor cost a year. On $1,500,000 of revenue, the labor cost percentage is 37.5%. The same team on $2,000,000 of revenue would be 28.1%.
A few choices change the result, so make them once and keep them consistent:
- What counts as labor. Fully loaded cost (wages, overtime, employer taxes, and benefits) gives a truer picture than wages alone. If you include contractors or temp staff who do the same work, say so.
- Matching periods. Divide one month's labor cost by the same month's revenue. Mixing a payroll period with a calendar month distorts the figure.
- Gross or net revenue. Use the same revenue line every time, after refunds and discounts if that is how you report.
- Whose labor. Some businesses track only front-line or billable staff to measure delivery cost, and track management and back-office staff separately.
Published benchmarks vary widely by industry, business model, and how each source defines labor cost, so we do not quote one here. Service businesses where people are the product, such as contact centers, BPOs, agencies, and consulting firms, run much higher labor percentages than businesses that sell goods. The most useful comparison is your own percentage month over month and against budget: a rising number means labor cost is growing faster than revenue, often because of overtime, idle time, or hours that were paid but not worked.
How to Reduce Labor Cost Without Cutting Pay
Most of the cost of an employee is fixed once they are hired. The parts you can control are how many hours you pay for, what you pay for them, and how much of that time goes to useful work.
Control overtime
Non-exempt employees earn 1.5 times their regular rate for hours over 40 in a workweek, and employer payroll taxes rise with the extra pay. A $20/hour employee who works five overtime hours earns $150 for them at $30 an hour, $50 more than the same hours at straight time, before employer taxes on the extra pay. The time and a half calculator shows the premium for any rate. HiveDesk overtime management applies your weekly overtime threshold and pay multiplier to tracked hours and shows the totals in an Overtime report, so you see overtime building during the week rather than after payroll closes.
Pay for hours actually worked
Rounded timecards, forgotten clock-outs, and estimated hours on paper timesheets all add paid time that was not worked. Automatic time tracking records the hours each person works on their computer, with screenshots and activity levels for context, and rolls them into timesheets that managers approve before payroll. HiveDesk does not run payroll or file taxes; it gives your payroll provider accurate hours to work from.
Schedule to demand
Overstaffed shifts pay people to wait, and understaffed shifts push the team into overtime. Matching shift schedules to the hours when work actually arrives is the biggest lever in contact centers and other hourly operations. See call center scheduling software for how HiveDesk handles shift scheduling.
Price work from the real hourly cost
If you bill clients by the hour, set rates from the cost per productive hour, not the wage. The salary to hourly calculator converts salaried roles to an hourly rate, and HiveDesk client billing generates invoices from tracked time at the hourly rates you set.
Contractor vs Employee Cost
An independent contractor does not appear on payroll, so the business pays no Social Security or Medicare match, no FUTA or SUTA, and usually no benefits. That makes a contractor look cheaper on paper. In practice the contractor's rate has to cover their own self-employment tax (both halves of Social Security and Medicare), health insurance, retirement savings, equipment, and unpaid time between projects, so the hourly rate is normally well above an employee's wage for the same work.
To compare the two fairly, set the contractor's total cost (rate x hours you expect to buy) against the employee's fully loaded cost from this calculator, and remember that you pay a contractor only for the hours or deliverables you agree on, while an employee's paid time off and holidays are part of their cost.
Cost cannot decide the classification. Whether a worker is an employee or a contractor depends on how much control the business has over the work and on the economic reality of the relationship, under tests set by the IRS, the Department of Labor, and each state. Misclassification can lead to back taxes, back wages, and penalties. This page is general information, not legal or tax advice; review the official guidance listed below or talk to an employment attorney or accountant before you decide.
Pay Only for Hours Actually Worked
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Frequently Asked Questions
With this calculator's defaults, a full-time $20/hour employee costs about $56,177 a year: $41,600 of wages plus $3,829 of payroll taxes and workers' comp, $7,748 of benefits, and $3,000 of overhead. That is 1.35x base pay, or $27.01 per paid hour. Assumes 40 hours a week, a 2.7% SUTA rate on the first $7,000, 1% workers' comp, $500 a month for health insurance, a 3% retirement match, $500 of other benefits, and $3,000 of overhead.
Using the same assumptions, a full-time $15/hour employee costs about $44,566 a year on $31,200 of wages, a 1.43x multiplier and $21.43 per paid hour. The multiplier is higher than at $20 because health insurance and overhead are flat dollar amounts that do not shrink with the wage.
The true (fully loaded) cost is base pay plus everything the employer pays because that person is on payroll: the employer share of Social Security and Medicare, federal and state unemployment tax, workers' compensation insurance, health insurance, retirement contributions, other benefits, and overhead such as equipment, software, and space.
Divide the total annual cost by the hours you pay for (hourly rate x hours per week x 52; 2,080 hours for a full-time 40-hour week). For the cost of an hour of actual work, divide instead by productive hours: paid hours minus paid time off and holidays.
In 2026 employers pay 6.2% Social Security on wages up to $184,500, 1.45% Medicare on all wages, FUTA of 0.6% on the first $7,000 (after the 5.4% state credit), and state unemployment tax at a rate and wage base set by the state. The 0.9% Additional Medicare Tax is withheld from the employee only, so it is not an employer cost.
Divide total labor cost by revenue for the same period and multiply by 100. Include wages, overtime, employer payroll taxes, and benefits in labor cost. A business with $500,000 of labor cost on $2,000,000 of revenue has a labor cost percentage of 25%.
There is no single right number. Labor-heavy service businesses such as contact centers, agencies, and consulting firms naturally run higher percentages than product businesses. Compare your own figure over time and against plan, and check that the inputs are calculated the same way each period.
A contractor's rate usually has to cover their own self-employment tax, benefits, and equipment, so the hourly rate is higher while the employer's add-on costs are lower. Whether someone can be treated as a contractor depends on how the work is controlled, not on preference; see the IRS and Department of Labor guidance or ask an employment attorney.
No. HiveDesk tracks time automatically, produces timesheets for approval, calculates weekly overtime from your threshold and pay multiplier, and generates client invoices from tracked hours at your hourly rates. You export hours to your payroll provider, which calculates and pays taxes.
Sources
- Social Security Administration: Contribution and Benefit Base (2026 wage base of $184,500)
- IRS Publication 15 (Circular E), Employer's Tax Guide (Social Security and Medicare rates, Additional Medicare Tax)
- IRS Topic No. 759: Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return (6.0% rate, $7,000 wage base, 5.4% credit)
- IRS: About Schedule A (Form 940) (credit reduction states)
- Washington Employment Security Department: Taxable wage base
- Bureau of Labor Statistics: Employer Costs for Employee Compensation, June 2026
- IRS: Independent contractor (self-employed) or employee?
- U.S. Department of Labor: Misclassification of employees as independent contractors
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