Employee Cost Calculator: True Cost of an Employee
A salary is only part of what an employee costs. Add your own benefit and payroll tax percentages, equipment and overhead to see the true cost of an employee per year and per productive hour, and the cost multiplier over base pay.
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Formula
Add-on cost = salary × (benefits % + payroll tax %) + equipment + overheadTotal cost = salary + add-on costHourly cost = total cost ÷ productive hoursMultiplier = total cost ÷ salary
Worked example
Salary 60,000, benefits 20%, payroll taxes 8%, equipment 2,000, overhead 5,000, 1,700 productive hours.
- Benefits: 12,000. Payroll taxes: 4,800.
- Total cost: 60,000 + 12,000 + 4,800 + 2,000 + 5,000 = 83,800.
- Hourly cost: 83,800 ÷ 1,700 = 49.29.
- Multiplier: 83,800 ÷ 60,000 = 1.40.
Percentages are entered by you; no tax rule is assumed.
Another example
Salary 45,000, benefits 15%, payroll taxes 10%, equipment 1,500, overhead 3,000, 1,800 productive hours.
- Benefits 6,750 and payroll taxes 4,500.
- Total cost: 45,000 + 6,750 + 4,500 + 1,500 + 3,000 = 60,750.
- Hourly cost: 60,750 ÷ 1,800 = 33.75. Multiplier: 60,750 ÷ 45,000 = 1.35.
When to use it
Use it to budget a hire, price billable hours, or compare an employee with a contractor. Enter the percentages from your own payroll and benefits invoices.
Rules of thumb
Many employers find the total cost lands somewhere around 1.25 to 1.4 times salary once benefits, taxes and overhead are included, but it varies a lot by country, role and benefits plan.
Common mistakes
- Dividing by 2,080 paid hours instead of productive hours.
- Leaving out recruiting, training and software costs. Add them to overhead.
- Applying a percentage to the wrong base. Both percentages here apply to base salary.
How it differs
This calculator prices what an employer pays. The salary-to-hourly calculator converts pay to an hourly wage, and the freelance rate calculator works backwards from the income a self-employed person needs.
Frequently asked questions
What is a fully loaded employee cost?
It is salary plus every other cost of employing someone: benefits, employer payroll taxes, equipment, workspace and admin. A 60,000 salary with 20% benefits, 8% payroll taxes, 2,000 equipment and 5,000 overhead costs 83,800 a year.
What percentages should I enter?
Use your own figures from payroll and benefits invoices. Payroll tax rules differ by country and region, so no rate is assumed here. Both percentages are applied to the base salary.
How are productive hours chosen?
Start from paid hours (about 2,080 for 40 hours × 52 weeks) and subtract holidays, leave, sick days and time on training or admin. 1,700 is a common working figure. 83,800 ÷ 1,700 = 49.29 per productive hour.
What does the cost multiplier tell me?
It is the total cost divided by salary: 83,800 ÷ 60,000 = 1.40. Many employers find the true cost is well above the salary, so a multiplier is handy when budgeting a hire. Results are estimates based on the numbers you enter.
How do I calculate the true cost of an employee?
Add salary, benefits, employer payroll taxes, equipment and overhead. Salary 60,000 with 20% benefits (12,000), 8% payroll taxes (4,800), 2,000 equipment and 5,000 overhead comes to 83,800 a year. Use your real payroll figures, because rates differ by country.
What is a good employee cost multiplier?
As a rule of thumb, many employers see between about 1.25 and 1.4 times base salary, though it can be higher with generous benefits or heavy overhead. Salary 60,000 and a total cost of 83,800 gives 1.40. Compare it with your own history before using it to budget.
Is an employee cheaper than a contractor?
Not always. An employee costing 83,800 for 1,700 productive hours is 49.29 an hour. A contractor charging 60 an hour for the same hours costs 102,000, but pays for their own benefits, equipment and downtime and you do not carry them when work is slow.