Reviewed by Scott Warner, CFO · · 2026 rates

Calculate my True Employee Cost

A $60K salary costs you more than $60K. See the full employer cost including payroll taxes, benefits, equipment, and overhead — before you make your next hire.

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True annual cost

total cost to employer

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Base salary$60,000

Health insurance (employer share)$6,000

401(k) match3%

PTO & paid holidays

Equipment & setup

Other benefits & overhead

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True cost breakdown

Base salary—

Employer Social Security (6.2%)—

Employer Medicare (1.45%)—

FUTA (federal unemployment)—

Health insurance (employer share)—

401(k) match—

PTO cost (paid time off)—

Equipment & setup (amortized)—

Other benefits & overhead—

True annual cost to employer —

Monthly cost

—

Cost above salary

—

Salary as % of total

—

What this means

The true cost of an employee is typically 1.25–1.4x their base salary for a basic benefits package, and can reach 1.5–1.7x for comprehensive benefits in a high-cost-of-living area. This is the number you need in your budget — not just the salary they're accepting.

Employer payroll taxes alone add 7.65% on top of every dollar of salary (matching FICA). FUTA adds a small amount on the first $7,000 of wages. State unemployment taxes (SUTA) vary by state and are not included here — add roughly 2–4% on early wages for most states.

Before hiring, the CFO question is: will this employee generate or save at least 3x their total cost? If yes, it's a good hire. If you're not sure, that's the planning conversation to have first.

CFO Tip

CFO

Many businesses don't account for the "soft costs" of a new hire: onboarding time, manager bandwidth, ramp-up period (typically 3–6 months where productivity is partial), and the cost of getting it wrong. A bad hire who leaves in 6 months can cost 1.5–2x their annual salary when you factor in recruiting and lost productivity.

The true cost of an employee — what employers need to know

Employer payroll taxes

Employers pay 6.2% Social Security (on wages up to $176,100 in 2026) and 1.45% Medicare on every dollar of salary. On top of that, FUTA (federal unemployment) adds 6% on the first $7,000 of wages per employee, though most employers pay only 0.6% after the state credit. State unemployment taxes (SUTA) vary by state and your claims history — typically 1–4% on the first $10,000–40,000 of wages.

Benefits that matter most to employees

Health insurance is consistently ranked the most valued benefit by employees. For a single employee, employer-sponsored premiums average around $7,000–8,000/year in 2026. For a family, that can reach $20,000+. A 401(k) match of 3–5% is essentially expected at most companies now — employees factor it directly into compensation comparisons.

PTO — the hidden cost

Paid time off isn't free. When you pay a $60,000/year employee for 15 days of vacation and holidays, you're paying roughly $3,500 for time they're not working. The actual impact is slightly larger when you consider that their workload still needs to get done — either by them catching up, by colleagues covering, or by work not happening. Factor PTO into your productivity calculations, not just your payroll budget.

Contractor vs employee — cost comparison

A contractor at $75/hour working 2,000 hours costs $150,000 — no payroll taxes, no benefits, no PTO. An employee with a $90,000 salary and moderate benefits might cost $115,000–125,000 total. In this example, the employee is actually cheaper on a fully-loaded basis, with the added benefit of more control and retention. The math doesn't always favor contractors, especially for full-time roles.

Have questions about your numbers? Talk to Scott Warner, CFO — real answers for real financial decisions.

Book a CFO Call →

Frequently asked questions

What is the true cost of an employee beyond salary?+

The full cost of an employee typically runs 1.25-1.4x their base salary when you include employer payroll taxes (7.65% FICA), health insurance ($6,000-$15,000/year), paid time off, retirement contributions, and overhead allocation. A $60,000 salary employee often costs $75,000-$85,000 in total annual cost to the employer.

What payroll taxes does an employer pay in 2026?+

Employers pay a matching 6.2% Social Security tax on wages up to $176,100, plus 1.45% Medicare tax on all wages with no cap. That's 7.65% total FICA on most wages. Additionally, employers pay FUTA (federal unemployment tax) at 0.6% net on the first $7,000 of wages after the state unemployment credit, plus your state's SUTA rate.

How do I calculate the cost of employee benefits?+

Health insurance is typically the largest benefit cost — employer contributions average $6,000-$8,000/year for individual coverage and $14,000-$20,000 for family coverage. Add retirement contributions (if you offer a match), dental and vision insurance, life insurance, and any other perks. Benefits commonly add $8,000-$20,000 per employee annually depending on what you offer.

When does it make sense to hire a full-time employee vs a contractor?+

Contractors cost more per hour but have no benefits, payroll taxes, or employment overhead. For ongoing, regular work exceeding 20-25 hours per week, a full-time employee typically becomes more cost-effective. For specialized, project-based, or variable work, contractors offer more flexibility. Also consider that contractors who work exclusively for you and follow your direction may legally be employees under IRS rules.

How does PTO affect the real cost per productive hour worked?+

A full-time employee with 15 days PTO works about 1,885 hours per year instead of 2,080. Divide their total annual cost by productive hours to get the real cost per hour. A $60,000/year employee with benefits totaling $80,000 costs about $42/hour in productive time — significantly more than the base hourly rate implies.