What does it really cost to hire an employee in the US?
More than the wage. You match the employee’s Social Security and Medicare taxes, pay federal and state unemployment taxes, and carry workers’ compensation, which most states require. Then add any health insurance and paid time off you offer, plus tools and training. Work out the full number before you hire, not after.
The payroll taxes you add
You pay the employer half of Social Security and Medicare, matching what is withheld from the employee. You also pay federal unemployment tax and your state’s unemployment insurance, which varies by state and by your claims history.
Workers’ compensation and insurance
Most states require workers’ compensation coverage, priced by your industry and payroll. Some states also require disability or paid leave insurance.
Benefits and time off
Federal law does not require paid vacation, but many states and cities set paid sick leave rules, and offering health insurance or paid time off is often what gets good people to say yes. Count whatever you offer as part of the cost.
The costs that are not on a pay stub
A vehicle or mileage, tools, a phone, safety gear, training, and your own time getting them up to speed. Full output usually arrives weeks after the full wage starts.
Also asked
- Are 1099 contractors cheaper?
- Only if they are genuinely independent. The IRS and your state look at how the work is controlled, not the label, and misclassification can mean back taxes and penalties.
- Do I need payroll software?
- It is not required, but it makes withholding, deposits and year end forms far easier to get right.
- How long before a hire pays for themselves?
- Work out how much extra work, or how much of your own time, they need to free up each month to cover their full cost, then check that the work is really there.
Related
Written for your trade
This is the kind of thing Solomon works through with owners using their own numbers. See how it works →