True Hourly Employee Cost Calculator
Calculate the fully-loaded hourly cost of an employee including salary, payroll taxes, benefits, PTO, and overhead.
Shows actual cost vs stated salary.
The true hourly cost of an employee is always significantly higher than their hourly wage or salary rate. Employers must account for mandatory payroll taxes, benefits, overhead, and downtime. Knowing this number is essential for accurate job pricing and profitability analysis.
Formula: True Hourly Cost = Total Annual Employee Cost ÷ Productive Hours per Year Total Annual Employee Cost = Gross Salary + Payroll Taxes + Benefits + Overhead Share Productive Hours = Total Work Hours − (Vacation + Sick + Training + Administrative Hours)
What each variable means:
- Gross Salary — the agreed annual salary before any deductions.
- Payroll Taxes (employer portion): Social Security 6.2% + Medicare 1.45% + FUTA/SUTA (varies by state, ~1–3%) = roughly 8–10% of gross salary.
- Benefits — health insurance ($500–$1,500/month per employee), dental, vision, 401(k) match, paid leave.
- Overhead Share — the employee’s portion of office space, equipment, software, utilities, HR, and management time.
- Productive Hours — a 40-hour/week employee works roughly 2,080 hours/year but productive hours after meetings, admin, and breaks may be 1,600–1,800.
Worked example: Employee earns $60,000/year salary.
- Payroll taxes: $60,000 × 9% = $5,400
- Health insurance: $700/month = $8,400
- 401(k) match (3%): $1,800
- Overhead allocation: $8,000
- Total Cost = $60,000 + $5,400 + $8,400 + $1,800 + $8,000 = $83,600/year
Productive hours = 2,080 − 120 (vacation/sick) − 80 (training/admin) = 1,880 hours
True Hourly Cost = $83,600 ÷ 1,880 = $44.47/hour
That’s 48% more than the $30/hour wage equivalent. This is why billing rates must be set at 2–3× the employee’s wage to cover all costs and generate profit.