How to use this calculator
Enter the employee's hourly rate or annual salary and hours worked per week. The calculator converts between hourly and annual automatically. Then fill in each benefit and tax category with your actual or estimated costs.
Default values are provided for common costs like FICA (7.65%) and workers compensation (1.5%). Adjust these to match your actual rates. Enter your monthly health insurance contribution and retirement match percentage.
The calculator shows the true cost per hour (fully loaded), true annual cost, the multiplier over base wage, a monthly breakdown by category, and the cost per productive hour after accounting for time off.
Understanding labor costs
The sticker price of an employee (their hourly rate or salary) is only the starting point. Mandatory costs like payroll taxes and workers compensation add 10% to 12% immediately. Then voluntary benefits like health insurance, retirement matching, and paid time off add another 15% to 30%.
Understanding your true labor cost is essential for pricing products and services, creating accurate budgets, deciding between hiring employees or contractors, and evaluating the ROI of each position. Many businesses underestimate this cost by only looking at the paycheck amount.
The cost per productive hour metric is particularly useful for service businesses that bill by the hour. If you pay an employee $25 per hour but their fully loaded cost per productive hour is $42, you need to bill significantly above $42 to cover overhead and generate profit.
Frequently asked questions
What is the average employer cost per employee?
According to BLS data, the average total compensation cost per hour worked is approximately 40% above the base wage. For a $50,000 employee, expect $62,500 to $70,000 in total cost. This varies by industry, location, and benefits offered.
How do I calculate the cost of PTO?
Multiply the employee's daily rate by the number of PTO days offered. For an employee earning $200 per day with 15 days of PTO, the annual PTO cost is $3,000. This is money paid for time not worked, making it a real labor cost above the productive wage.
What costs should I include in fully loaded labor?
Include: base wages, employer FICA (7.65%), federal and state unemployment taxes, workers compensation insurance, health/dental/vision insurance, retirement contributions, PTO value, training costs, equipment and supplies, and any other recurring employee related expenses.
How does labor cost differ for hourly vs salaried employees?
Salaried employees have a fixed annual cost regardless of hours worked, while hourly costs fluctuate. However, salaried employees typically receive more benefits (better insurance, higher PTO, bonuses) so their total burden rate percentage is often higher. Hourly employees may trigger overtime costs at 1.5x after 40 hours.
What is a labor burden rate?
The labor burden rate is the percentage of additional costs above the base wage expressed as a ratio. A 35% burden rate on a $50,000 salary means $17,500 in additional costs for a total of $67,500. Burden rates typically range from 25% to 40% depending on the benefits package and industry.