How Much Does Your Employee Cost You?

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The true cost of an employee goes beyond just salary. Calculating your labor rates involves examining variables such as the industry you’re in, type and characteristics of the role, location of your company, and benefits you provide. Accurately calculating the cost of an employee helps you effectively track and budget projects and clients to complete budgeting and profitability reports. Here are some variables to use when determining how much an employee costs you.

Base Salary Factors   

A variety of factors affect an employee’s base salary. For instance, because location affects the cost of living, it also affects base salary. Residents in different geographic areas need varying levels of income to pay for housing, groceries, utilities, transportation, healthcare, and other expenses. Due to the cost of living differences, if you have offices in San Antonio, Miami, and Manhattan, you may pay one employee in San Antonio $30,769, another employee in Miami $40,000, and a third employee in Manhattan $83,322 for the same role. Other factors that affect base salary include industry sector, demand for professionals and skills in the market, education and experience, company size, job tasks, success and performance.

Binding Costs

The binding costs of taxes and unemployment insurance you’re required to cover employee costs. For instance, the Federal Insurance Contributions Act (FICA) is a mandatory payroll deduction that covers Social Security and Medicare. You’re required to cover 6.20% for Social Security and 1.45% for Medicare. The Federal Unemployment Tax Act (FUTA) requires you to pay 6% (2.1% in California) for the first $7,000 earned by an employee. The State Unemployment Tax Act (SUTA) typically runs between 2.7% and 3.4%. 

Workers’ Compensation Insurance

You need to pay workers’ compensation insurance to ensure employees against injury. This further increases the cost of an employee. Since risks vary among industries and jobs, so do the costs. Each type of job is covered by a specific rate for every $100 of salary. Rates are higher for jobs where injuries are more common.


The benefits you provide your employee cost. For instance, if you offer health insurance for an employee earning $50,000 a year, you may pay $2,000-$3,000 for single coverage and $6,000-$7,000 for family coverage. Life insurance may cost you $150 on the first $50,000 of wages. Long-term disability insurance may run $250 per year. Dental insurance depends on your number of employees, type of coverage provided, and location of your business. Typical costs range between $20 and $50 a month per employee. A 401(k) plan may average 2.5% of an employee’s salary. Personal devices such as laptops and cell phones and company vehicles further increase employee costs.

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