The True Cost of Hiring an Employee

By the time you add payroll taxes, benefits and overhead, an employee costs 25–40% more than their base salary. Here's where that money goes and how to budget for it.

The 1.25–1.4x rule

Hiring experts estimate a W-2 employee costs roughly 1.25 to 1.4 times their salary all-in. Put your own number behind it with the cost-to-hire calculator.

What's in the multiplier

• Payroll taxes: the employer share of Social Security and Medicare (~7.65%) plus unemployment.
• Benefits: health insurance, retirement match and paid time off — often 20–30% of salary.
• Overhead: equipment, software, space and admin to support the role.

Employee vs contractor

Contractors skip payroll taxes, benefits and most overhead — often cheaper for variable or project work, while employees win for steady full-time roles. Compare in the contractor vs employee calculator.

Don't forget turnover

Replacing someone costs 20% of salary for entry roles and far more for specialists. Factoring that in often justifies spending to retain people — see the turnover cost calculator.

Setting a freelance rate

If you're the one being hired, the same math means your rate must exceed your old hourly wage. Work it out with the freelance rate calculator.