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The cost of hiring an employee is significantly higher than the salary you offer. Employers pay payroll taxes, fund benefits, and incur overhead costs that add 20–40% to the base salary. This calculator quantifies the total real cost.
What employers pay in payroll taxes (US)
FICA — Federal Insurance Contributions Act - Social Security: 6.2% of wages (on first $168,600 of wages in 2024) - Medicare: 1.45% of all wages (plus 0.9% Additional Medicare on wages above $200k) - Total FICA: 7.65% of wages
FUTA — Federal Unemployment Tax - 6.0% on first $7,000 of wages, reduced to 0.6% after state unemployment credit - Effective rate: typically $42/employee/year after credit
SUTA — State Unemployment Tax - Varies by state: 0.2%–8%+ on a state wage base (typically first $10,000–$40,000) - New employer default rate is often 2.7%
What benefits typically cost employers
| Benefit | Typical employer cost |
|---|---|
| Health insurance (self) | $7,000–$15,000/year |
| Health insurance (family) | $18,000–$28,000/year |
| 401(k) match (3–5% of salary) | $3,600–$6,000 on $120k salary |
| Dental + Vision | $600–$1,500/year |
| Life insurance | $200–$500/year |
| Paid time off (15 days) | ~5.8% of salary in cost |
The 1.25–1.40× rule of thumb
A commonly cited rule: total employer cost = 1.25–1.40× annual salary for US full-time employees with standard benefits. At $120k salary: - 1.25×: $150,000/year total cost - 1.35×: $162,000/year total cost
Higher for senior employees with comprehensive benefits; lower for contractors (no payroll taxes if properly classified as 1099).
Employee vs contractor cost comparison
Contractors (1099) cost more per hour but have no payroll taxes or benefits. For a 40-hour/week engagement, the break-even: - $120k employee = ~$58/hour effective cost - Contractor at $75–90/hour may cost more but requires no long-term commitment
Use this calculator alongside the Freelance Rate Calculator to compare options.
Frequently asked questions
What does this calculator do? Calculate total employer cost including payroll taxes (FICA, FUTA, SUTA) and benefits.