Free tool
First Employee Cost Calculator
A $22/hour employee doesn’t cost you $22/hour. Once you add employer payroll taxes, workers’ comp, and the overhead nobody quotes you, the real number usually lands 20 to 35% higher. Here’s your estimate.
Estimated first-year cost
$0
$0 per hour actually worked · 0× the hourly wage
- Wages 0%
- Payroll taxes 0%
- Insurance & overhead 0%
| Base wages | $0 |
| Paid time off | $0 |
| Paid training | $0 |
| Social Security (6.2%) | $0 |
| Medicare (1.45%) | $0 |
| FUTA (0.6% on first $7,000) | $0 |
| State unemployment (SUTA) | $0 |
| Workers' compensation | $0 |
| Phone, software, fuel | $0 |
| Uniforms & PPE | $0 |
| Tools & equipment | $0 |
| Total first-year cost | $0 |
Employer payroll taxes alone add 0% on top of wages. Everything below that line is what turns a wage into the real cost of employing someone.
Want this emailed to you?
Your numbers are already on the page and they always will be. This is only here so you can keep a copy or send it to whoever does your books.
What the number actually tells you
The useful output here is the multiplier rather than the total. Once you know an employee costs roughly 1.25 to 1.4 times their wage, you can price jobs without guessing.
Say you pay $22/hour and bill $45/hour for that person’s time. Your gross margin on their labor looks like 51%. After employer taxes, comp insurance, and the truck they’re driving, it’s closer to 35%, and that’s before any of your own overhead. That gap is the most common reason a first hire leaves the business feeling poorer.
Two things this estimate leaves out on purpose
- Health insurance. Most businesses this size aren’t offering it yet, and the cost varies far too much to guess at. If you do plan to offer it, add your quoted contribution on top.
- Your own time. Managing one employee eats several hours a week. Scheduling, checking work, answering questions, running payroll. It’s real, and it’s the cost owners notice last.
This is an estimate, not tax advice
Use these figures for planning only. Payroll tax rules, state unemployment rates, and workers’ comp classifications all change, and they vary by state. Confirm your own numbers with the IRS, your state agency, your insurance carrier, and an accountant before you rely on them.
Assumptions used (2026)
| Item | Value | Notes |
|---|---|---|
| Social Security (employer) | 6.2% | Applies up to $184,500 of wages. |
| Medicare (employer) | 1.45% | No wage cap. |
| FUTA | 0.6% | 6% less the 5.4% state credit, on the first $7,000. A few credit-reduction states pay more. |
| SUTA (default) | 2.7% on $15,000 | Filled from our state table. Varies by state and your claims history. |
| Workers' comp | Per trade, editable | Rough national midpoints. Your own quote is the real number. |
We check these against IRS Publication 15 and the SSA wage-base announcement. Spot something out of date and tell us. We’ll fix it.
Next step, actually paying them
Knowing the cost is step one. The moment you put someone on a W-2 you take on withholding, deposit deadlines, quarterly Form 941s, an annual 940, W-2s in January, and state filings on their own schedule. Missing a deposit deadline is where the penalties live.
Our payroll guide for your first employee walks through what has to happen, in order, and says plainly when doing it by hand is still reasonable.
If you would rather not hand-file anything, Gusto is the payroll service we point most one-to-five-employee service businesses at. It files your federal and state taxes automatically and handles the onboarding paperwork. Read the guide first, because there are cases where you genuinely don’t need it yet.