The wage is only part of what an employee costs. Here is the rest, using 2026 IRS rates.
Annual cost as a percentage of the base wage. Targets shown in brackets.
Total annual cost per employee
$69,332.00
Total burden rate
33.3%
Cost above the wage
$17,332.00
True hourly cost
$33.33
Total monthly cost
$5,777.67
Same work as a contractor
$67,600
| Component | Annual | Per hour | % of total |
|---|---|---|---|
| Base wage | $52,000.00 | $25.00 | 75.0% |
| Social Security (6.2%, up to $184,500) | $3,224.00 | $1.55 | 4.7% |
| Medicare (1.45%, no cap) | $754.00 | $0.36 | 1.1% |
| Federal unemployment (0.6%, first $7,000) | $42.00 | $0.02 | 0.1% |
| State unemployment | $1,248.00 | $0.60 | 1.8% |
| Workers compensation | $624.00 | $0.30 | 0.9% |
| Health insurance | $4,680.00 | $2.25 | 6.8% |
| Retirement match | $2,080.00 | $1.00 | 3.0% |
| Paid time off | $3,640.00 | $1.75 | 5.3% |
| Equipment and other | $1,040.00 | $0.50 | 1.5% |
| Total loaded cost | $69,332.00 | $33.33 | 100% |
2026 federal rates per IRS Publication 15: Social Security 6.2% on wages up to the $184,500 wage base, Medicare 1.45% with no cap, FUTA 0.6% on the first $7,000 after the standard 5.4% state credit. State unemployment and workers compensation rates vary by state and trade.
Payroll burden is every cost of employment beyond the wage itself. Two categories are legally required and cannot be avoided: employer payroll taxes and, in most states, workers compensation insurance. The rest is your own choices about benefits and time off. Understanding which is which matters when costs need to come down.
| Category | Components | Can it be reduced? |
|---|---|---|
| Required taxes | Social Security 6.2%, Medicare 1.45%, FUTA 0.6%, state unemployment | No. These follow from having an employee. |
| Required insurance | Workers compensation, state-mandated where applicable | Only by changing trade classification or state, both rarely practical. |
| Optional benefits | Health premiums, retirement match, life and disability | Yes. This is where most flexibility exists. |
| Time and equipment | Paid vacation and sick leave, laptop, phone, tools, mileage | Yes, but reducing paid leave affects retention and morale. |
Many business owners compare hiring an employee against hiring a contractor and conclude the contractor is cheaper. On the invoice it usually is. Once payroll taxes, insurance, benefits and equipment are counted, the gap typically closes to 30 to 40 percent of the wage, which is substantial.
The calculator shows the annualised contractor figure as a common alternative, assuming a contractor bill rate about 30 percent above the equivalent wage to cover their own taxes, insurance, and profit. The comparison is not always straightforward: a contractor still has to be paid while you wait to invoice, gives you less control over scheduling, and creates worker classification risk if the working relationship looks employee-like in practice.
Payroll burden is the total cost of an employee beyond their gross wage: employer payroll taxes, unemployment taxes, workers compensation insurance, benefits, paid time off, and equipment. It is usually expressed as a percentage of the wage, called the burden rate. A burden rate of 25 to 35 percent is typical for a US small business hiring an employee rather than a contractor, so a $52,000 wage typically costs somewhere between $65,000 and $70,000 in total.
Employer FICA alone adds 7.65 percent: 6.2 percent Social Security on wages up to the 2026 wage base of $184,500, and 1.45 percent Medicare on all wages with no cap. Federal unemployment adds 0.6 percent on the first $7,000 per employee after the standard state credit. State unemployment varies by state and your own claims history. Workers compensation and benefits then push the total burden rate into the 25 to 35 percent range for most small employers.
An employee requires you to withhold income tax and the employee share of FICA, match the FICA employer share, pay federal and state unemployment taxes, and provide workers compensation and benefits, typically 25 to 35 percent on top of the wage. A contractor handles their own taxes, so the cost is close to the invoice amount. The gap is often 30 to 40 percent of the wage, which is why misclassifying a worker as a contractor creates substantial back-tax liability.
Generally yes. Employer payroll taxes, workers compensation premiums, and the employer portion of health and retirement contributions are deductible business expenses. Note that deduction does not reduce the cash cost, so budget on the gross figure and treat the deduction as a tax benefit that arrives later.
Common benefit costs measured against annual wages include employer-paid health insurance premiums, employer retirement contributions such as a 401k match, paid vacation and sick time, and equipment allowances such as a laptop or phone. The usual method is to total the annual cost of each benefit, divide by the annual wage, and express it as a percentage. Common targets are 8 to 12 percent for health, 3 to 6 percent for retirement, and 5 to 10 percent for paid time off.
It can. Employer Social Security tax stops at $184,500 in 2026 for each employee, but Medicare continues with no cap at all. Above that wage level the employer tax rate falls from 7.65 percent to 1.45 percent, so higher earners are noticeably cheaper in tax terms than the 7.65 percent baseline suggests. For most small businesses this matters only for senior or highly skilled roles.