How it's calculated
An employee costs more than their pay. On top of every dollar of wages, the employer pays its own share of Social Security and Medicare, federal unemployment tax (FUTA) and state unemployment tax, and usually some benefits. The calculator adds those to gross pay to give the total yearly cost, the cost per hour actually worked, and a multiplier: how many dollars of cost each dollar of pay brings with it.
- Employer Social Security and Medicare. The employer matches the employee: 6.2% Social Security on pay up to $184,500, and 1.45% Medicare on all pay. The extra Additional Medicare Tax on high earners is paid only by the employee.IRS
- FUTA. 6.0% on the first $7,000 of each employee's pay, less a credit of up to 5.4% for state unemployment tax paid, so most employers pay 0.6%. Employers in a state that owes the federal unemployment fund pay more through a credit reduction. For 2026, California is on the Department of Labor's list.IRSU.S. DOL
- State unemployment tax (SUI or SUTA). Each state taxes pay up to its own wage base, at a rate it assigns each employer. New employers get a standard new-employer rate until they have a few years of history. The calculator uses that rate unless you enter your own.U.S. DOL
- Benefits and overhead. Your share of health insurance premiums, 401(k) contributions, other benefits and an overhead percentage for equipment, space and admin.
Employer health premiums and employer retirement contributions are not wages for Social Security, Medicare or FUTA, so no payroll tax is added on top of them.IRS
The formula
- Pay = salary, or hourly wage × paid hours per week × 52.
- Employer Social Security = 6.2% × the smaller of pay or the Social Security wage base.
- Employer Medicare = 1.45% × pay.
- FUTA = (0.6% + any credit reduction) × the smaller of pay or $7,000.
- State unemployment tax = state rate × the smaller of pay or the state wage base.
- Benefits = monthly health share × 12 + 401(k) % × pay + other benefits.
- Overhead = overhead % × pay.
- Total cost = pay + lines 2–7. Multiplier = total cost ÷ pay.
- Hours worked = paid hours per week × 52 − paid days off × (paid hours per week ÷ 5). Cost per hour worked = total cost ÷ hours worked.
Worked example
A $60,000 employee in Texas with 15 paid days off, a $500 monthly health insurance share and a 3% 401(k) match costs $72,675 a year, or 1.21 times their pay.
| Line | Annual |
|---|---|
| Gross pay | $60,000 |
| Pay for hours worked | $56,538 |
| Paid time off | $3,462 |
| Employer Social Security | $3,720 |
| Employer Medicare | $870 |
| Federal unemployment (FUTA) | $42 |
| Texas unemployment tax | $243 |
| Health insurance (employer share) | $6,000 |
| 401(k) contribution | $1,800 |
| Total cost to employer | $72,675 |
Because 15 of the paid days are time off, each hour actually worked costs $37.08.
The same pay with no benefits shows the payroll taxes alone: $4,875 in Texas, compared with $4,982 in California, where the higher new-employer rate and the FUTA credit reduction add up.
Assumptions and limitations
- New-employer state rate by default. Established employers pay a rate based on their own layoff history, which can be far lower or higher. Pick "My rate" and enter the rate from your state rate notice. Where we show the U.S. Department of Labor's base rate, state surcharges may be extra; the note under the result says which.
- Some states have no single new-employer rate. Washington, Minnesota and a few others assign new employers their industry's average rate; for those, and for any state whose figures we could not yet confirm, state unemployment tax is left out until you enter your rate.
- Not included: workers' compensation insurance, state disability or paid-leave contributions paid by the employer, local payroll taxes, recruiting and training costs. Add them as other benefits or overhead.
- Pre-tax employee deductions. If the employee pays health premiums through a Section 125 plan, the employer's Social Security, Medicare and FUTA are a little lower than shown.
- One year, one employee, all pay inside the calendar year. No overtime; use the overtime cost calculator for that.
For the payroll taxes paycheck by paycheck, see the employer payroll tax calculator. For what the employee takes home, use the paycheck calculator.