What an employee really costs
The salary in an offer letter is only the start. Before you hire, you need the full number: the wages, the payroll taxes only the employer pays, insurance, benefits and the tools the new person needs to do the job. That total decides whether the hire pays off, what to charge clients for their time and how much runway the company has left.
With the defaults, a $60,000 salary with $500 a month toward health insurance and a 3% retirement contribution costs $72,432 a year, 1.21 times the salary. Add a 2% state unemployment rate on a $10,000 wage base, 1% for workers' comp and $2,500 for a laptop, software and training, and the total grows to $75,732, or 1.26 times the salary. Those state and insurance rates are only an example: yours come from your state and your insurer.
Employer payroll taxes for 2026
The federal figures come from IRS Publication 15 (Circular E) for 2026. Social Security and Medicare are split: the employee pays one half through withholding, and the employer pays the other half on top of the wages. Only the employer half is a cost of the hire, so the calculator counts only that.
| Tax | Employer rate | Applies to | Most per employee |
|---|---|---|---|
| Social Security | 6.2% | Wages up to $184,500 | $11,439.00 |
| Medicare | 1.45% | All wages, no cap | No limit |
| Additional Medicare Tax | 0% | Employee only, on wages over $200,000 | None |
| FUTA | 0.6% after the credit | First $7,000 of wages | $42 |
| State unemployment | Set by your state | Up to the state wage base | Rate × base |
Federal unemployment tax (FUTA) is paid only by the employer and is never withheld from the employee's pay. The rate is 6.0%, but the IRS gives a credit of up to 5.4% when you pay your state unemployment tax in full and on time, which leaves 0.6%. A state that borrowed from the federal government for unemployment benefits and has not repaid the loan in time becomes a credit reduction state. There the credit shrinks by 0.3 percentage points in the first year and by another 0.3 for each later year the loan stays unpaid, and the Department of Labor announces those states after November 10 each year. If your state is on the list, raise the FUTA rate in the calculator, for example to 0.9%.
State unemployment tax has its own rate and wage base, which the IRS notes can differ from the $7,000 FUTA base. Your state unemployment agency assigns your rate, so enter the rate it gave you rather than a guess.
Why the tax rate falls for high salaries
Social Security stops at the wage base and FUTA at $7,000, while Medicare runs on every dollar. So the federal employer tax is 7.65% of any salary up to $184,500, plus at most $42 of FUTA, and the rate falls once the salary passes the wage base. These are the federal taxes alone, before state unemployment tax:
| Salary | Social Security | Medicare | FUTA | Total | Of salary |
|---|---|---|---|---|---|
| $30,000 | $1,860.00 | $435.00 | $42.00 | $2,337.00 | 7.79% |
| $60,000 | $3,720.00 | $870.00 | $42.00 | $4,632.00 | 7.72% |
| $100,000 | $6,200.00 | $1,450.00 | $42.00 | $7,692.00 | 7.69% |
| $150,000 | $9,300.00 | $2,175.00 | $42.00 | $11,517.00 | 7.68% |
| $184,500 | $11,439.00 | $2,675.25 | $42.00 | $14,156.25 | 7.67% |
| $250,000 | $11,439.00 | $3,625.00 | $42.00 | $15,106.00 | 6.04% |
| $400,000 | $11,439.00 | $5,800.00 | $42.00 | $17,281.00 | 4.32% |
The cap applies per employee and per calendar year. Someone hired in the middle of the year reaches it later or not at all, and a company that hires someone mid-year still counts only the wages it pays itself. The calculator assumes one full calendar year with one employer.
Benefits and other costs
For health insurance, enter the part of the premiums the company pays, per month, including dental and vision. Retirement contributions are entered as a percent of pay, for example a 3% match on a 401(k).
Neither adds payroll tax. IRS Publication 15 lists employer-paid accident and health insurance premiums under a plan for employees and employer contributions to a qualified retirement plan as exempt from Social Security, Medicare and FUTA tax. The employee's own 401(k) deferrals do not help you here: they still count as wages for those taxes, so the calculator applies payroll taxes to the full salary.
Other costs are whatever the job needs: a laptop and phone, software seats, training and courses, travel, a desk. Spread one-time purchases over the years you use them. A $1,800 laptop that lasts three years is $600 a year.
Cost per hour and paid time off
The calculator counts 52 paid weeks a year. At 40 hours a week that is 2,080 paid hours, but paid holidays, vacation and sick days are not worked. With 15 paid days off, that is 120 hours less, so 1,960 hours of actual work. The default example costs $34.82 per paid hour but $36.96 per hour worked. Use the hour worked figure when you set prices for client work or compare a hire with a contractor: the hourly rate calculator and the day rate calculator start from the same idea.
For hourly employees, the calculator multiplies the wage by the hours per week and 52 weeks. Overtime is not included. If you expect overtime, switch to Yearly salary and enter the total pay for the year including the overtime pay, and the taxes follow.
What the estimate leaves out
- Other state and local payroll taxes. If your state or city charges employers another tax as a percent of wages, add its rate to the state unemployment rate.
- Bonuses and raises. Add a planned bonus to the yearly salary; it is taxed like wages. The raise calculator shows what a raise adds.
- Hiring and overhead. Recruiting fees, onboarding time, office space and payroll software are real costs, but they are easier to judge for your own company. Put the yearly share into Other costs.
- Tax credits. Any employer tax credit you qualify for lowers the net cost. None are included, because they depend on your situation.
To see the hire from the employee's side, the paycheck calculator shows the same salary after income tax and the employee half of Social Security and Medicare. To see how a new salary changes how long your cash lasts, enter the higher monthly expenses in the startup runway calculator.
Tax year and sources
Federal rates and limits are for tax year 2026, checked in October 2026. This is an estimate for planning, not tax advice.
- IRS Publication 15 (2026), Circular E, Employer’s Tax Guide
- IRS Topic 759: Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return
- IRS: FUTA credit reduction
How to use the employee cost calculator
- 1Choose a yearly salary or an hourly wage, enter the pay and the hours per week, and the paid days off a year.
- 2Enter your state unemployment rate and wage base from your state unemployment agency and your workers' comp rate from your insurer. FUTA, Social Security and Medicare are filled in.
- 3Add what you pay toward health insurance each month, the retirement match and the yearly cost of equipment, software and training.
- 4Read the total yearly cost, the multiple of the salary and the cost per hour worked, then check the breakdown and copy the result or a link.
Frequently asked questions
How much does an employee cost on top of salary?
It depends on your state, your insurance and your benefits, so enter your own numbers. With the defaults, a $60,000 salary, $500 a month toward health insurance and a 3% retirement contribution, the employer pays $4,632 in federal payroll taxes and $7,800 in benefits, $72,432 in total, or 1.21 times the salary. State unemployment tax, workers' comp and equipment come on top.
What payroll taxes does an employer pay in 2026?
Social Security at 6.2% of each employee's wages up to $184,500, Medicare at 1.45% of all wages, federal unemployment tax (FUTA) at 6.0% of the first $7,000 less a credit of up to 5.4% for state unemployment tax, and your state unemployment tax. The employee pays the same Social Security and Medicare rates out of their own pay, which you withhold.
Does the employer pay the 0.9% Additional Medicare Tax?
No. You withhold it from an employee's wages above $200,000 in a calendar year, but IRS Publication 15 states that there is no employer share. The employer pays only the regular 1.45% Medicare tax, on all wages and without a cap.
Do health insurance and retirement contributions add payroll tax?
No. IRS Publication 15 lists employer-paid accident and health insurance premiums under a plan for employees and employer contributions to a qualified retirement plan as exempt from Social Security, Medicare and FUTA tax. The employee’s own 401(k) deferrals are different: they still count as wages for those taxes.
Why is FUTA 0.6% and not 6%?
The FUTA rate is 6.0%, but employers who pay their state unemployment tax in full and on time get a credit of up to 5.4%, which leaves 0.6% on the first $7,000, at most $42 per employee a year. In a credit reduction state the credit is smaller and the rate higher, so change the FUTA rate in the calculator if that applies to you.
How do I work out the cost per hour?
Divide the total yearly cost by the hours the employee actually works. The calculator counts 52 paid weeks, so 40 hours a week is 2,080 paid hours, but paid holidays, vacation and sick days are not worked. The calculator subtracts those days, so the cost per hour worked is higher than the cost per paid hour.
Is this tax advice?
No. It is an estimate for planning a hire. Payroll taxes depend on details such as your state, your industry and how benefits are set up, so check the numbers with your payroll provider or tax adviser before you rely on them.