Employee Cost Calculator
Work out the true annual cost of an employee: salary, employer payroll taxes, benefits, equipment and overhead, with the cost per productive hour.
How to use this calculator
- 1Enter gross salary and any bonus, then your jurisdiction's employer payroll tax rate.
- 2Add pension, insurance and the overhead an employee brings — equipment, workspace, training.
- 3Enter contracted hours and paid leave to get a cost per hour actually worked.
- 4For billable roles, set utilisation to the share of hours you can charge for.
How the calculation works
total = pay + (pay × payroll tax %) + statutory + pension + insurance + overhead burden % = (total − pay) ÷ pay cost per hour = total ÷ hours actually worked- pay
- Gross salary plus bonus and commission
- payroll tax %
- Employer-side contribution: US FICA at 7.65%, UK employer NI at 15% above threshold
- burden %
- Everything above cash pay, as a percentage of it — the standard hiring-cost measure
- hours worked
- Contracted hours less paid leave and holidays, which are paid but not worked
Payroll taxes and pension contributions normally apply to cash pay only, not to the value of benefits, which is how they are calculated here.
Cost per hour divides by hours actually worked, not contracted hours. Someone on 37.5 hours a week with 33 days of leave is paid for 1,950 hours and works about 1,703 — ignoring that understates hourly cost by 15%.
Utilisation matters again for billable roles. If only 70% of worked hours can be charged to a client, the cost per billable hour is a further 43% higher, and the charge-out rate has to clear it before any profit exists.
The familiar "an employee costs 1.25 to 1.4 times salary" is this calculation with typical inputs. The multiplier rises sharply where employer-paid health cover is significant.
Worked example
A £50,000 employee in the UK
- 1.Cash pay: £50,000.
- 2.Employer National Insurance at 15%: £7,500.
- 3.Pension at 3%: £1,500.
- 4.Equipment: £2,000.
- 5.Total: 50,000 + 7,500 + 1,500 + 2,000 = £61,000 — a 1.22× multiplier.
- 6.Paid hours: 37.5 × 52 = 1,950. Less 33 days at 7.5 hours = 247.5 hours of leave.
- 7.Hours actually worked: 1,702.5. Cost per worked hour: 61,000 ÷ 1,702.5 = £35.83.
Result: £61,000 a year, £35.83 per worked hour
A billable consultant at 70% utilisation
- 1.Cash pay: 80,000 + 8,000 = $88,000.
- 2.FICA at 7.65%: $6,732. Other statutory: $1,200.
- 3.Pension at 4%: $3,520. Health cover: $12,000.
- 4.Overhead: 3,000 + 4,000 + 2,500 = $9,500.
- 5.Total: $120,952 — a 1.37× multiplier on cash pay.
- 6.Paid hours 2,080, less 25 days at 8 hours = 200, giving 1,880 worked.
- 7.At 70% utilisation only 1,316 hours are billable: 120,952 ÷ 1,316 = $91.91 per billable hour, before any profit.
Result: $120,952 a year, $91.91 per billable hour
Why salary is only about three-quarters of the cost
The commonly cited figure is that an employee costs between 1.25 and 1.4 times their salary. That range is not a rule of thumb plucked from nowhere — it is what this calculation produces with ordinary inputs, and where a business sits in the range depends mostly on how much of the benefits burden the employer carries.
The floor is set by statutory costs, which are unavoidable. In the US that is FICA at 7.65% plus federal and state unemployment insurance and workers' compensation. In the UK it is employer National Insurance at 15% above the secondary threshold, plus mandatory pension auto-enrolment. Neither is optional and neither appears on a payslip.
The spread comes from benefits. An employer paying $15,000 a year toward family health cover on a $60,000 salary has a 25% burden from that item alone, which is why US employers frequently exceed the 1.4× figure while employers in countries with public healthcare rarely do.
Cost per hour, and the hours nobody works
Dividing annual cost by contracted hours produces a number that is always too low, because a substantial share of contracted hours are paid but not worked. Annual leave, public holidays and sick days are all paid time during which nothing is produced.
In the UK, 28 days of statutory minimum leave including public holidays against a 37.5-hour week means roughly 210 hours of a 1,950-hour year are paid leave — about 11%. Many employers offer more. Add expected sick days and the gap between paid and worked hours reaches 12–15%.
This matters most when comparing an employee with a contractor. A contractor's day rate looks expensive next to a salary until the salary is converted to a cost per hour actually worked and grossed up for the burden. The comparison frequently reverses.
Utilisation, and why charge-out rates look so high
For any role billed by the hour, the cost per worked hour is still not the number that matters. What matters is the cost per hour that can actually be charged to a client, and that is always fewer hours — internal meetings, training, business development, admin and gaps between projects are all worked but not billable.
Professional services firms typically run 60–80% utilisation for delivery staff. At 70%, the cost per billable hour is 43% above the cost per worked hour, purely because the same total cost is spread over fewer chargeable hours.
This is why charge-out rates appear to bear no relation to salaries. A consultant costing $121,000 a year has a break-even billable rate around $92 an hour before a penny of profit, overhead recovery or bench time between engagements is covered. A rate of $200 an hour is not a 100% margin.
What this assumes, and where it stops
Assumptions
- Payroll tax and pension contributions apply to cash pay, not to the value of benefits.
- The payroll tax rate entered is flat, with no thresholds, bands or caps.
- Paid leave is valued at contracted hours divided over a five-day week.
- Equipment, recruitment and training costs are already annualised over their useful life.
Limitations
- A flat payroll tax rate. Real systems have thresholds, caps and bands — US Social Security stops at a wage base, and UK employer NI applies only above a secondary threshold — so the figure is approximate near those boundaries.
- Does not model region-specific levies, apprenticeship levies, or industry-specific insurance requirements.
- Overhead is whatever you enter. Genuinely allocating shared costs such as management time, HR and finance to a single employee is a judgement call this cannot make for you.
- Assumes a full year of employment with no mid-year joiners, leavers or unpaid leave.
- Not tax or legal advice. Employer obligations differ by jurisdiction and change frequently.
Common questions
How much does an employee really cost?
Typically 1.25 to 1.4 times their salary once employer payroll taxes, pension, insurance and overhead are counted. A £50,000 employee in the UK costs around £61,000 with statutory contributions and basic equipment. Where the employer pays substantial health premiums, as is common in the US, the multiplier can exceed 1.4.
What is a burden rate?
Everything an employer pays above cash wages, expressed as a percentage of those wages. A 30% burden rate means an employee on £50,000 costs £65,000 in total. It is the standard way of comparing the cost of employees between roles, departments or businesses.
How do I work out cost per hour for an employee?
Divide the total annual cost by hours actually worked, not contracted hours. Subtract paid leave and public holidays first — someone contracted for 1,950 hours with 33 days off works about 1,703. Using contracted hours understates the hourly cost by 12 to 15%.
Why is a consultant's charge-out rate so much higher than their salary?
Because the total employment cost has to be recovered over billable hours only, which are typically 60 to 80% of hours worked. A consultant costing $121,000 a year at 70% utilisation breaks even around $92 an hour before overhead, profit, or time spent between engagements is covered.
Sources
Formula and content last reviewed on .
Results are estimates for information only, not professional advice.
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