True cost of an employee calculator
Annual cost breakdown
| Expense Category | Annual Cost | % of Total |
|---|
$15,700.00 labor burden above base wages
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How it works & common questions
What is the "true cost" or labor burden of an employee?
When you agree to pay an employee $50,000 a year or $25 an hour, that gross wage is only part of what leaving your business bank account. Include the costs that apply to your business:
- Employer payroll taxes: Enter your effective rate from your payroll records or adviser.
- Workers compensation: Enter your quoted annual premium.
- Benefits & overhead: Health insurance, retirement matching, software seats, laptops, uniforms, and annual training.
- Paid non-productive time: When you pay 2,080 hours a year (40 hours x 52 weeks), but provide 15 days of PTO and paid holidays (120 hours), the employee is only on the clock producing revenue for 1,960 hours. This drives up the real hourly cost of production.
A worked example
Suppose you hire a team member at a $50,000.00 annual salary:
- Gross wage: $50,000.00
- Employer payroll taxes (10%): $5,000.00
- Workers comp insurance: $1,200.00
- Healthcare & dental insurance: $6,000.00
- Retirement match: $1,500.00
- Equipment & overhead: $2,000.00
- Total annual employer outlay: $65,700.00 ($15,700.00 above salary, or a 31.4% labor burden).
- Cost per productive hour: $65,700 / (2,080 gross hours − 120 PTO hours = 1,960 productive hours) = $33.52 per hour. That is 39.4% higher than the nominal $24.04/hr wage rate!
Common mistakes
The most common mistake small business owners make when bidding service jobs or setting prices is using the employee's raw hourly wage as their labor cost. Billing an employee out at $35/hour when their wage is $25/hour looks profitable on paper, but after paying payroll taxes, workers comp, health benefits, and paid holidays, their loaded cost is $33.52/hour, leaving just $1.48 per billed hour before other business costs.