What an Employee Really Costs: The 1.4× Rule
The most common budgeting error in small companies is treating salary as cost. The fully loaded number — salary plus taxes, benefits, equipment and overhead — runs 25–40% higher. Pricing and profitability math built on raw salary quietly guarantees thin margins.
- Employer payroll taxes add ~8–12%: the 7.65% FICA match plus unemployment insurance.
- Benefits add 10–25% depending on the health plan; equipment and overhead add the rest.
- The fully loaded hourly figure (annual cost ÷ 2,080) is the number that belongs in pricing math.
Layer 1: payroll taxes (the unavoidable 8–12%)
Employers match the employee's 7.65% FICA contribution — 6.2% Social Security up to the wage base, 1.45% Medicare uncapped. Federal and state unemployment insurance add a bit more. There is no way around this layer, and it scales exactly with salary.
Layer 2: benefits (the variable 10–25%)
Health insurance is the biggest swing. A lean individual plan might cost 8–12% of salary; a generous family plan can exceed 25%. Retirement match, life and disability insurance, and paid-leave accrual fill in the rest.
Two companies offering 'the same salary' can differ by 15 points of real cost — and the difference is invisible in the offer letter.
Layer 3: equipment, software and overhead
A laptop, monitor and onboarding cost $2,000–4,000 upfront. Recurring overhead — software seats, workspace, training, the share of rent and utilities — commonly adds $3,000–8,000 per person per year in office roles.
And the first year is worse than the run rate: recruiting fees and the 3–6 month productivity ramp mean a new hire's true first-year cost runs meaningfully above their steady-state number. Plan cash for this, especially when hiring several people at once.
Why the loaded hourly rate matters
A $70,000 salary with a 22% benefits load, 10% payroll tax and $5,000 overhead is a $95,900 fully loaded cost — $46.11 per 2,080-hour year. A billable team member priced at $55/hour against that number has almost no margin after non-billable time.
Our employee cost calculator computes all layers from your actual benefits and overhead figures. Service businesses that price from raw salary instead of loaded cost are the ones wondering where the money goes.
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Employee Cost Calculator
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Break-Even Calculator
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Frequently asked questions
What is the burden rate?
Loaded cost expressed as a share of base salary. A 1.35 burden rate means a $70,000 salary costs $94,500 fully loaded.
Contractor vs employee — which is cheaper?
Contractors bill 30–50% above salaried equivalents but carry no benefits, taxes or overhead. The breakeven is roughly 1,500–1,800 hours of annual need.