Short answer: A $20-an-hour employee working 30 hours a week costs about $34,967 a year, not the $31,200 in wages: 12% on top of wages for payroll taxes, unemployment insurance, workers' comp and payroll software. Benefits add more. Paying yourself first? See How to Pay Yourself From an LLC (and How Much Is Safe).
Check our math
Here is the result above, step by step, using the numbers already filled in.
- Yearly wages$20.00 × 30 hrs × 52 weeks = $31,200
- Employer Social Security and Medicare$31,200 × 7.65% = $2,387
- Federal unemployment (FUTA)0.6% × $7,000 = $42
- State unemployment2.7% × $10,000 wage base = $270
- Workers' comp$31,200 × 1.5% = $468
- Benefits and payroll software$0 + $50 × 12 = $600
- Total yearly cost$34,967
- Per paid hour$34,967 ÷ 1,560 hrs = $22.41
How this calculator works
Every employee comes with costs on top of their pay. Employers pay their own half of Social Security and Medicare, 7.65% of wages (IRS: Understanding employment taxes), plus federal unemployment tax: 6% of the first $7,000 of wages, reduced to 0.6% when you pay your state unemployment tax on time (IRS Topic 759: Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return).
State unemployment tax is set by your state. New employers usually get an assigned rate for the first years, often 1–4%, on a wage base that ranges from $7,000 to over $70,000 depending on the state. Workers' comp insurance is priced as a share of payroll and depends heavily on the job: low for office work, much higher for physical work. Check both with your state and your insurer and enter your numbers.
Benefits and payroll software finish the picture. Payroll services handle withholding, tax deposits and year-end W-2s, and are usually worth the monthly fee for a first hire, since late or wrong payroll tax filings carry penalties. Paid time off is already counted if you enter paid weeks, including vacation, as 52.
Full-time employee cost by hourly wage
| Hourly wage | Yearly wages | Total cost | On top of wages | With $500/mo benefits |
|---|---|---|---|---|
| $15.00 | $31,200 | $34,967 | 12% | $40,967 |
| $18.00 | $37,440 | $41,778 | 12% | $47,778 |
| $20.00 | $41,600 | $46,318 | 11% | $52,318 |
| $25.00 | $52,000 | $57,670 | 11% | $63,670 |
| $30.00 | $62,400 | $69,022 | 11% | $75,022 |
| $35.00 | $72,800 | $80,373 | 10% | $86,373 |
| $40.00 | $83,200 | $91,725 | 10% | $97,725 |
40 hours a week, 52 paid weeks, 2.7% state unemployment on a $10,000 wage base, 1.5% workers' comp, $50 a month payroll software.
Worked examples
Part-time shop helper
$17 an hour, 20 hours a week, no benefits.
| Result | |
|---|---|
| Total yearly cost | $20,210 |
| Per paid hour | $19.43 |
| On top of wages | 14% |
Full-time office manager
$28 an hour, 40 hours a week, with $600 a month toward health insurance.
| Result | |
|---|---|
| Total yearly cost | $71,681 |
| Benefits | $7,200 |
| On top of wages | 23% |
Tradesperson
$30 an hour, full time, with workers' comp at 8% of wages for physical work.
| Result | |
|---|---|
| Total yearly cost | $73,078 |
| Workers' comp | $4,992 |
| On top of wages | 17% |
Using your result
Compare the total cost with the extra revenue the hire makes possible. If a new employee lets you take on more clients or frees your time for sales, the question is whether that work brings in more than this number. The cash runway calculator shows how the new cost changes how long your cash lasts.
Then check the hourly figure: total cost divided by paid hours. If you bill clients for this person's time, that's the least you can charge for it before any profit.
Before the first paycheck, register with your state for unemployment insurance and withholding, get workers' comp coverage, and set up payroll. Make sure the role is truly an employee, not a contractor (IRS guidance); misclassifying a worker carries back taxes and penalties.
What it doesn't cover
- Some states add other payroll costs, such as paid family leave or disability insurance.
- Local payroll taxes aren't included.
- Recruiting, training, equipment and overtime aren't included.
- It assumes you get the full FUTA credit by paying state unemployment tax on time.
Read more
Frequently asked questions
How much does an employee cost on top of wages?
With no benefits, about 12% more than wages at the starting numbers here. Health insurance or retirement contributions can push it to 25–40% or more.
What does a $20-an-hour full-time employee really cost?
About $46,318 a year at 40 hours a week, with no benefits, compared with $41,600 in wages.
What payroll taxes do employers pay?
Your half of Social Security and Medicare (7.65% of wages), federal unemployment tax (usually 0.6% of the first $7,000 per employee) and state unemployment tax. You also withhold the employee's own share and income tax from their pay.
Should I hire an employee or a contractor?
It depends on how you control the work, not on what you'd prefer. If you set the hours and direct how the job is done, the worker is usually an employee (IRS).
How much should I budget for benefits?
It depends on what you offer. Health insurance contributions are usually the largest; enter your monthly cost per employee in the benefits field to see the full effect.
Is a part-time employee cheaper per hour?
Usually a little, because unemployment taxes stop once wages pass the state wage base and part-timers often don't get benefits. Payroll taxes and workers' comp still apply to every dollar of wages.
Do I need workers' comp for my first employee?
Most states require it once you have employees, though rules for very small businesses vary. Check with your state; the cost depends on the job.
Sources
- IRS: Understanding employment taxes
- IRS Topic 759: Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return
- IRS: Independent contractor (self-employed) or employee?
Reviewed against IRS sources: October 2026 · Updated October 2026 · By the NetTakeHome team. Estimates for planning, not tax, legal or financial advice.