How it works
An employee costs more than their salary. Employers pay their own share of Social Security and Medicare (FICA), federal and state unemployment taxes, and typically health insurance, retirement contributions and workers' compensation.
The extra cost, expressed as a percentage of salary, is the labor burden. For US employers offering standard benefits it commonly lands between 20% and 40%.
Rates are editable because they change by year and state. The Social Security wage base caps the 6.2% tax; Medicare's 1.45% employer share has no cap.
Formula
Total cost = Salary + 6.2% × min(Salary, wage base) + 1.45% × Salary + FUTA + SUTA + Benefits + Other.
Questions people ask
How much does an employee cost on top of salary?
A common rule of thumb is 1.25 to 1.4 times salary once payroll taxes and benefits are included. Generous health plans can push it higher.
Does the employer pay the additional 0.9% Medicare tax?
No. The additional Medicare tax on wages over $200,000 is withheld from the employee only; the employer share stays at 1.45%.
Why is FUTA only $42?
FUTA is 6% of the first $7,000 of wages, but employers that pay state unemployment tax on time usually get a 5.4% credit, leaving 0.6% of $7,000: $42 maximum per employee per year. Credit-reduction states pay more.
Are contractors cheaper?
You avoid payroll taxes and benefits with a true independent contractor, but their rate is usually higher, and misclassifying an employee as a contractor can bring back taxes and penalties.