Employee Cost Calculator

About the Employee Cost Calculator

The salary on a job advert is only part of what an employee costs. On top of it, an employer pays payroll taxes, pension or retirement contributions, health insurance and other benefits, and the equipment, software and training the person needs to do the job. And some of the hours that are paid for — holidays, public holidays, sick days — produce no work at all.

This employee cost calculator adds all of that up. From the salary, the employer's payroll taxes and retirement contributions, benefits and other costs, it gives the total annual cost, the multiple of salary that represents, the cost per month, and the cost per hour actually worked once paid days off are taken into account.

How to Use the Employee Cost Calculator

Enter the annual salary.

Enter the employer payroll taxes as a percentage of salary.

Enter the retirement contribution the employer pays, as a percentage.

Enter the annual cost of benefits such as health insurance.

Enter other costs: equipment, software, training and recruitment, spread over a year.

Enter the hours per week and the paid days off in a year, including holidays, public holidays and typical sick days.

How the True Cost Is Calculated

  employer taxes   =  salary × payroll tax %
  retirement       =  salary × retirement %
  total cost       =  salary + taxes + retirement + benefits + other costs
  hours worked     =  52 × hours per week − paid days off × hours per day
  cost per hour    =  total cost ÷ hours worked
  multiple         =  total cost ÷ salary

Step-by-Step Example

A salary of 50,000, employer taxes of 7.65%, a 4% retirement match, 6,000 of benefits, 2,500 of other costs, 40 hours a week and 30 paid days off.

  Employer taxes:   50,000 × 7.65%            =  3,825
  Retirement:       50,000 × 4%               =  2,000
  Total cost:       50,000 + 3,825 + 2,000
                    + 6,000 + 2,500           =  64,325
  Multiple:         64,325 ÷ 50,000           =  1.29×
  Hours worked:     52 × 40 − 30 × 8          =  1,840
  Cost per hour:    64,325 ÷ 1,840            =  34.96

The employee's salary works out at about 24 an hour over 2,080 paid hours, but each hour of actual work costs the business almost 35.

The Multiplier Rule of Thumb

Businesses often budget a new hire at 1.25 to 1.4 times the salary. The exact figure depends on the country, the benefits offered and the kind of job. Roles that need expensive equipment, software licences or regular training sit at the top of the range; roles with few extras sit lower.

Using the calculator instead of a rule of thumb makes the figure specific to your business, and shows which costs drive it.

Why Cost per Hour Worked Matters

Paid holidays and sick days are part of the employment package, but they reduce the time available for productive work. Spreading the annual cost over the hours actually worked gives the true cost of an hour of that person's time.

That figure is useful in several ways. It shows what a business has to charge clients for an employee's time just to break even. It allows a fair comparison with hiring a contractor or outsourcing the work. And it helps decide whether automating a task, or buying a tool that saves time, is worth the money.

Employee or Contractor?

A contractor's hourly rate usually looks much higher than an employee's salary divided by 2,080. But the contractor pays their own taxes, pension, equipment, training and unpaid time between jobs — the costs this calculator adds to a salary. Compare the contractor's rate with the employee's cost per hour worked, not with their hourly salary, to see which is really cheaper.

There are other differences too: flexibility, commitment, knowledge kept in the business, and the legal rules on who counts as an employee. The numbers are one part of the decision.

Costs Beyond the Payslip

Some employment costs are easy to miss because they are not paid every month. Recruitment can cost a large share of a first year's salary once advertising, agency fees and interview time are counted. Onboarding takes time from managers and colleagues before the new person is fully productive. And when someone leaves, the business pays for the recruitment all over again.

Spreading one-off costs over the expected time in the job gives a fairer annual figure. If recruitment costs 6,000 and people typically stay three years, add 2,000 a year to other costs. The same approach works for a laptop replaced every three or four years.

Using the Figure to Price Work

Businesses that sell staff time — agencies, consultancies, contractors — need to charge well above the cost per hour worked, because not every hour is billed to a client and the business has overheads of its own: premises, management, sales and administration.

A common approach is to work out the cost per hour worked, divide it by the expected utilisation to get the cost per billable hour, and then add a margin for overheads and profit. If an employee costs 34.96 per hour worked and bills 75% of their time, each billable hour costs about 46.61 before any overhead or profit is added.

Understanding Your Result

Total cost is what the employee costs the business in a year.

Multiple of salary shows the total as a multiple of the salary.

Cost per hour worked spreads the total over productive hours.

Cost per month is the total divided by twelve.

Breakdown lists each part of the cost.

Worth knowing shows how paid days off reduce the hours worked.

When Should You Use This Calculator?

Budgeting for a new hire.

Pricing staff time for clients or projects.

Comparing an employee with a contractor.

Reviewing the cost of benefits and pay packages.

Preparing a business plan with staffing costs.

Common Mistakes

Budgeting salary only.

Forgetting recruitment and training costs.

Dividing by paid hours instead of hours worked.

Leaving out equipment and software.

Comparing contractor rates with hourly salary.