Employee Total Cost Calculator

What this employee cost calculator does

Salary is usually the biggest line item in a hiring plan, but it’s rarely the full cost. This calculator estimates an employee’s fully loaded annual cost by adding employer payroll taxes, benefits, and other overhead to base salary. It then converts that total into an effective hourly cost using your expected annual working hours (often 2,080 for a 40-hour week × 52 weeks in the U.S.).

Inputs (what each field means)

• Annual salary (S): Gross wages paid to the employee in a year (base pay). If you’re modeling a role with variable comp, decide whether to include an expected bonus/commission in salary or treat it separately (see limitations below).
• Payroll tax rate (p): Employer-side statutory payroll taxes expressed as a percent of salary. Many U.S. employers use 7.65% as a starting point for the employer share of Social Security + Medicare (FICA) on applicable wages, but your true burden can be higher once unemployment insurance, workers’ comp, local payroll taxes, or benefit payroll taxes are included. Reference: IRS guidance on FICA tax rates (Tax Topic 751).
• Annual benefits cost (B): Employer-paid benefits such as health insurance premiums, dental/vision, employer retirement match, HSA/FSA contributions, life/disability insurance, wellness stipends, education benefits, and similar.
• Annual overhead (O): Per-employee support costs—equipment, software licenses, background checks, training, recruiting amortization, office or remote stipend, allocated rent/utilities, security tools, and other shared costs. A good rule is: include costs that scale with headcount and aren’t already counted elsewhere.
• Annual working hours (h): The hours you want to spread total annual cost across. Common benchmarks:
  • 2,080 = 52 × 40 (gross hours)
  • ~1,900–2,000 if you want to approximate PTO/holidays/training time
  • Lower if you’re estimating billable hours only (e.g., client services)

Formulas used

This calculator models payroll taxes as a single percentage of salary and adds fixed annual benefit and overhead amounts.

Total annual employee cost

In symbols:

Where:

• C = total annual cost
• S = annual salary
• p = payroll tax rate (%)
• B = annual benefits cost
• O = annual overhead

Effective hourly cost

Once the annual total is calculated, the effective hourly cost is:

H = C ÷ h

How to interpret the results

• Total annual cost (C) helps with budgeting, headcount planning, and cash runway. It’s the number you want when you ask, “What does this hire actually cost the company per year?”
• Effective hourly cost (H) is most useful for pricing, utilization planning, and comparing options (employee vs contractor). It answers, “If I spread all annual costs across the hours I care about, what’s my baseline cost per hour before profit/margin?”

If you lower annual working hours to reflect PTO/holidays/non-billable time, the hourly cost increases—often materially. That’s expected: the annual cost doesn’t change, but you’re dividing it across fewer hours.

Worked example

Suppose you’re estimating the cost of a full-time hire with the following inputs:

• Salary (S): $80,000
• Payroll tax rate (p): 7.65%
• Benefits (B): $8,000
• Overhead (O): $4,000
• Annual working hours (h): 2,080

1. Payroll taxes = 80,000 × (7.65 ÷ 100) = $6,120
2. Total annual cost (C) = 80,000 + 6,120 + 8,000 + 4,000 = $98,120
3. Effective hourly cost (H) = 98,120 ÷ 2,080 ≈ $47.17/hour

Contractor comparison (quick sanity check)

If a contractor charges $60/hour and you expect to use them for 2,080 hours, the annual spend is about $124,800. In this example, the employee’s effective hourly cost is about $47.17/hour—but remember the comparison depends on utilization (do you truly need 2,080 hours?), scope (contractors may bring tools/insurance), and the overhead you’ve included for employees.

Common modeling choices (and how they change the hourly number)

Assumptions & limitations

• Taxes are simplified. Payroll taxes are treated as a single flat percent of salary. Real payroll taxes can involve wage base limits, additional employer taxes, and jurisdiction-specific rules.
• Not legal/tax advice. This is a planning estimate; consult your payroll provider or tax professional for compliance numbers.
• Benefits and overhead vary widely. Health insurance premiums, retirement match, and overhead allocations differ by company size, industry, location, and plan design.
• Double-counting risk. If your overhead figure already includes employer payroll taxes or benefits, don’t also enter them separately.
• Excludes some costs unless you add them. Examples include equity compensation, employer-provided meals, relocation, severance, annual raises, and the value of management time. Add these into overhead if you want them reflected.
• Hours definition matters. The hourly output depends strongly on the hours you choose (gross vs productive vs billable). Use a definition that matches your decision.

FAQ

What is the “fully loaded” cost of an employee?

It’s the total annual cost to the employer, not just salary—commonly salary plus employer payroll taxes, benefits, and an allocation of overhead.

Does this include PTO?

PTO doesn’t usually change the annual employer cost directly, but it reduces productive hours. To reflect PTO in an hourly view, reduce annual working hours (h) so the hourly cost increases appropriately.

What should I put for overhead?

Include recurring per-employee costs (software, equipment, training, allocated facility costs, security tools). If you have one-time expenses (recruiting fees, onboarding equipment), you can annualize them and include that annualized amount.