How it’s calculated
- Payroll Taxes
- equals Salary × Employer Payroll Tax Rate
- Retirement
- equals Salary × Contribution Rate
- Total Annual Cost
- equals Salary + Payroll Taxes + Benefits + Retirement + Other Costs
- Hourly Cost
- equals Total Annual Cost ÷ Paid Hours per Year
Worked example
A small firm is hiring a bookkeeper at $52,000. It estimates employer payroll taxes at 8.5% (FICA plus unemployment taxes), pays $9,600 a year toward health insurance, matches 4% into a retirement plan, and budgets $3,500 for a laptop, software and training.
- Payroll taxes = $52,000 × 8.5% = $4,420.00
- Retirement match = $52,000 × 4% = $2,080.00
- Total = $52,000 + $4,420.00 + $9,600 + $2,080.00 + $3,500 = $71,600.00
- Hourly cost = $71,600.00 ÷ 2,080 = $34.42
The fully loaded cost is about 1.38× the salary.
Assumptions and limitations
- Payroll tax is applied as a flat percentage of salary. In practice, the Social Security portion stops at an annual wage cap, federal and state unemployment taxes apply only to the first portion of wages, and rates vary by state and employer history.
- Benefits and other costs are entered as annual dollar amounts. Include workers’ compensation insurance, payroll service fees, equipment, software seats and training where relevant.
- Hourly cost divides by paid hours (including paid time off). Cost per productive hour is higher.
- Recruiting, onboarding and office space are not included unless you add them to other costs.
Results are estimates for information only and are not financial, tax or legal advice. See our disclaimer.