The crew has been running six-day weeks since spring. The office manager is doing the estimates at night. You turned down two jobs last month because nobody could start them, and the person you would hire to fix that wants $70,000. The question in your head is "can I afford another employee," and the number you are weighing it against is $70,000. That is the wrong number. It is the smallest number in the decision.
This page is the hiring decision from the owner's side of the desk: what an employee actually costs fully loaded, whether that cost is ever paid back by the work they do, whether your cash can carry them through the months before they are productive, and whether overtime covers the same work for less. It ends in one of four answers -- hire, do not hire, wait until a stated cash threshold, or add overtime instead -- and the free employee cost calculator runs the same math on your numbers with every field blank until you fill it.
The Real Problem: Owners Price the Hire at the Wage and Test It Against Nothing
Two mistakes decide most bad hires before the job is posted. The first is the wage. An owner says "$70,000" and means the salary; the business pays the salary plus its share of Social Security and Medicare, federal and state unemployment tax, workers' compensation, whatever benefits come with the job, and the truck, phone, software seat and tools that follow a person around. The loaded number is routinely a quarter more than the wage, sometimes half again, and the gap is the entire margin of the decision.
The second mistake is the test. "Can I afford it" gets answered by looking at the bank balance, which is a question about this month. A hire is a recurring commitment that starts costing money on day one and starts producing money weeks or months later, after training, licensing and learning your customers. The right test is not whether you can make the first payroll. It is whether you can make every payroll through the ramp if the new work shows up late, and whether the person ever brings in more than they cost once they are up to speed.
There are three ways a hire fails, and all three are visible from your own numbers before you write the offer:
- Nothing you can name pays for it. "We are so busy" is a feeling. If you cannot point at the overtime you would stop paying, the subcontractor you would stop using, or the jobs you turned away, the hire is $7,000 a month leaving with nothing coming back.
- What they bring in is less than what they cost. A person who removes $4,500 a month of cost and produces nothing new does not pay for a $7,400-a-month loaded seat. Re-scope the role, or do not hire.
- You cannot carry the ramp. The economics clear on paper, but three months of paying a loaded salary before the work lands takes the bank balance under the floor you need to make the rest of payroll.
Each one alone is a do-not-hire, or a wait. None of them needs a benchmark, a survey, or a consultant's opinion of what a good hire is worth. That is why this decision comes before the job description.
How Much Does It Cost to Hire an Employee? The Six Numbers That Decide It
These are the inputs. Pull them from your payroll register, your tax notices and your policy, not from a rule of thumb. The right-hand column says who in your finance setup can produce each one if you cannot.
| Question | Where the number comes from | Who can pull it |
|---|---|---|
| 1. What will you pay, and for how many hours? | The offer: hourly rate or salary, scheduled hours, expected overtime at time-and-a-half for an hourly role, paid days off | You |
| 2. What are the employer taxes and insurance on top of the wage? | Federal: Social Security and Medicare, FUTA (fixed rates, cited below). State unemployment: the rate notice from your state workforce agency. Workers' comp: your policy's rate per $100 of payroll for this class of work | Your payroll provider or bookkeeper; the state notice and the insurance policy are in your files |
| 3. What else follows this person around? | Your share of health insurance or a retirement match; the vehicle, phone, tools, uniforms, software seats; the recruiter fee, equipment and onboarding time up front | You, with the bookkeeper for last year's per-head costs |
| 4. How long until they produce at full rate, and what do they produce during the ramp? | Your experience with the last person in this seat; licensing or training time; how much of a full workload they carry in the first months | You |
| 5. What cost do they remove, and what gross profit do they add, once productive? | Overtime on the payroll register, subcontractor and temp-agency invoices, your own hours you would bill instead; the jobs you turned away or the backlog you cannot start, at gross profit (revenue less the direct cost of doing it), not at revenue | You; a controller if you need job-level margins to answer it |
| 6. What cash must stay in the bank no matter what, and what does the business add each month today? | Payroll, rent, loan payments, tax set-asides times the months you refuse to go below; the typical monthly move in the bank balance before this hire | Bookkeeper for the outflows and the monthly cash flow; you for the floor |
Question 5 is the one owners answer too generously, and question 4 is the one they skip. A salesperson with a six-month sales cycle produces nothing for six months no matter how good they are; a technician who needs a license produces nothing until the license arrives. The ramp is a cash cost, and it belongs in the decision.
The True Cost of an Employee: The Math
Fully loaded cost per year. Wages, plus the employer's share of Social Security (6.2 percent of wages up to the annual wage base) and Medicare (1.45 percent of all wages), plus federal unemployment tax (0.6 percent of the first $7,000 after the state credit), plus state unemployment tax at your rate on your state's wage base, plus workers' compensation at your policy's rate, plus benefits, plus the recurring costs that come with the seat. Divide by twelve for the monthly cost. Divide by the wage alone for the loaded multiple, which is the number to remember: it is what every future "$X an hour" actually costs you.
Cost per productive hour. The loaded annual cost divided by the hours the person is paid to work, not the hours they are paid for. Paid days off are paid but not worked. A 40-hour employee with fifteen paid days off works 1,960 hours, not 2,080, and a $88,000 loaded cost is $45 an hour, not $42. In year one the ramp cuts the productive hours again; the calculator shows both numbers.
Contribution. The cost the person removes plus the gross profit they add, per month, once they are up to speed. If contribution is less than the loaded monthly cost, the hire never pays for itself. This is the test that ends most hiring conversations, and it is the one owners skip because the wage looked affordable.
Runway through the ramp. Assume no new revenue at all until the ramp ends. Each month of the ramp, the hire drains its loaded cost less whatever the business already adds to the bank in a typical month. That drain, times the months of ramp, plus the one-time cost of hiring, plus your cash floor, is the cash threshold: the number that has to be in the bank on the start date. Below it, the answer is wait, and the threshold is the number to wait for.
Payback. The money that goes out before the hire is earning (the one-time cost plus the ramp months of loaded cost not covered by what they produced) divided by the monthly surplus after the ramp (contribution minus loaded cost), plus the ramp itself. If you have a limit, payback has to land inside it.
The overtime alternative. Hours over forty in a workweek cost time-and-a-half for a non-exempt employee, plus the employer taxes on those wages. That is expensive per hour and cheap per commitment: it stops the week the work stops. If the load you are hiring for will end within a year, it is overtime work, not a hire. If it is permanent, compare the monthly cost of covering the hours at time-and-a-half against the loaded cost of the hire; the breakeven is a number of hours a week, and above it the hire wins.
The downside. If the new work comes in at half what you expected, can the cash above your floor carry six months of the shortfall while you fix it? If not, de-risk: a part-time start, a shorter ramp, or counted work instead of expected work.
Worked example: the $70,000 estimator at a $2 million construction company
A $2 million general contractor is turning down bid invitations because the owner does the estimating at night and cannot keep up. The project manager is paid $1,500 a month in overtime to help. The owner wants to hire an estimator at $70,000 salary, 40 hours a week, fifteen paid days off, and $650 a month toward health insurance. Here is the whole decision on those numbers. Every figure is the example's own; the state unemployment rate and the workers' comp rate are what this owner's notice and policy say, not what yours will.
| Line | Number | Where it came from |
|---|---|---|
| Salary | $70,000 | The offer |
| Employer Social Security, 6.2% | $4,340 | IRS Topic 751; wages are under the 2026 base of $184,500 |
| Employer Medicare, 1.45% | $1,015 | IRS Topic 751, no cap |
| Federal unemployment (FUTA), 0.6% of the first $7,000 | $42 | IRS Topic 759, after the 5.4% state credit |
| State unemployment, 2.7% of the first $9,000 | $243 | The new-employer rate on this owner's state notice |
| Workers' comp, $2.10 per $100 of payroll | $1,470 | This owner's policy, estimating class |
| Benefits, $650 a month | $7,800 | The employer share of the health plan |
| Phone, truck share, software seats | $3,600 | Last year's per-head cost from the bookkeeper |
| Fully loaded cost per year / per month | $88,510 / $7,376 | 1.26 times the salary |
| Cost per productive hour | $45.16 | $88,510 over 1,960 hours (2,080 paid less 120 off); $51.61 in year one with a three-month ramp at half output |
| One-time cost to hire | $4,000 | Job ads, background check, a laptop and estimating software setup |
| Ramp | 3 months at 50% | The last estimator took a quarter to bid at full pace |
| Cost removed per month | $1,500 | The project manager's overtime, from the payroll register |
| Extra gross profit per month, once productive | $9,000 | The declined bid invitations, at the company's usual win rate and gross margin -- named work, not an estimate |
| Contribution per month / surplus over the loaded cost | $10,500 / $3,124 | $1,500 + $9,000; $10,500 - $7,376 |
| Cash today / monthly cash flow before the hire / floor | $125,000 / +$4,000 / 1 month of $95,000 | Operating account; the typical monthly move in the balance; payroll, rent, loan payments, tax set-aside |
| Drain through the ramp at zero new revenue | $3,376 a month, $10,128 total | $7,376 loaded less the $4,000 the business already adds, times three months |
| Cash threshold on the start date | $109,128 | $95,000 floor + $4,000 one-time + $10,128 ramp; the owner is $15,873 above it |
| Payback from the start date | 6.3 months | 3 months of ramp, then ($4,000 + $6,378 of uncovered ramp cost) at $3,124 a month |
| Downside at half the new work | +$1,874 a month | $4,000 - $7,376 + $5,250; survivable |
| Verdict | HIRE | It pays, the cash carries the ramp, the downside survives |
Notice what decided it. The salary was $70,000 and the seat cost $88,510; the owner who tested the hire at the wage would have been $18,510 a year wrong. The hire passed because the declined bids were real, countable work: the owner had the invitations in the inbox and knew the win rate. The cash question was closer than it looked -- $15,873 of headroom on a $125,000 balance -- because one month of unavoidable outflows at a $2 million contractor is $95,000, and that money is not available for anything.
Change one input and the verdict changes. Had the extra gross profit been the owner's best guess rather than named bids, the answer is wait: on the $1,500 of overtime it removes, the hire does not clear $7,376 a month, and an estimate is not evidence. Had the balance been $105,000 instead of $125,000, the answer is wait until cash reaches $109,128 -- $4,128 more than today -- and the 13-week forecast says which week that is. Had the estimator's extra work been worth $3,000 a month rather than $9,000, contribution would be $4,500 against $7,376 loaded: do not hire, or re-scope the seat to a part-time estimator whose loaded cost the work can carry.
What to Do With Each Answer
The calculator returns one of four verdicts. Each maps to a next action, and none of them is "hire the cheapest person you can find."
| Verdict | What it means | Next action |
|---|---|---|
| Hire | Contribution clears the loaded cost, the cash carries the ramp with no new revenue, and the downside survives | Put the start date and the loaded monthly cost into a 13-week cash flow forecast so the threshold is a line you watch. If it is a first employee or a first employee in a new state, the registrations come before the first paycheck: the payroll compliance diagnostic lists what a payroll provider sets up and what stays with you, and the payroll picks on the tools page compare providers |
| Wait until a cash threshold | The economics clear but the cash does not: the threshold shown is what has to be in the bank on the start date, or the verdict rests on an estimate that has not been counted | For cash: find the week the forecast clears the threshold; that is the earliest offer date. If growth is eating the cash, read why growth is eating your bank balance before adding payroll to it. For evidence: cover the work with overtime or a subcontractor for 60-90 days and count |
| Add overtime instead | Overtime at time-and-a-half covers the hours for less than the loaded hire, or the load will end within a year, or the hire only pays on an estimate | Track the hours for 60-90 days; if they hold above the breakeven the calculator shows, run it again. If the overtime is really unbilled hours and drive time, busy but not profitable shows how to measure the productive ratio before you buy more hours of it |
| Do not hire | Nothing you can name pays for the seat, or what it brings in is less than what it costs, or payback runs past your limit | If you could not answer question 5 because you cannot tell which jobs make money, that is a job-costing question before it is a hiring question. Re-scope the role before you drop it: fewer hours, a narrower job, a part-time or fractional arrangement whose loaded cost the work can carry |
Where the Employer-Side Numbers Come From, and Which Ones Are Yours
Three of the loads are federal and fixed; the calculator carries them with their sources and lets you override each one. Two are yours and cannot be looked up for you.
- Social Security and Medicare. The employer pays 6.2 percent of wages for Social Security, up to the annual wage base ($184,500 for 2026), and 1.45 percent of all wages for Medicare, with no cap. The 0.9 percent Additional Medicare Tax on wages above $200,000 is withheld from the employee and has no employer match, so it is not a cost of the hire. Source: IRS Tax Topic 751.
- Federal unemployment (FUTA). 6.0 percent of the first $7,000 of each employee's wages, less a credit of up to 5.4 percent for paying state unemployment tax on time, so 0.6 percent net -- $42 a year per employee at most. Employers in a state that has not repaid its federal unemployment loans lose part of the credit and pay more; the calculator's default is the floor. Source: IRS Tax Topic 759.
- State unemployment insurance. Every state sets its own taxable wage base and its own rates, and a new employer pays the state's new-employer rate until it earns an experience rate. The figure that applies to you is on the rate notice your state workforce agency sent when you registered, and it changes yearly. The U.S. Department of Labor publishes every state's wage base and new-employer rate in Significant Provisions of State Unemployment Insurance Laws (January 2026 edition) if you want to see yours before the notice arrives. No state's rate is pre-filled on this page or in the calculator, because the only true number is the one on your notice.
- Workers' compensation. Priced by your insurer per $100 of payroll, by the class of work, and varying by an order of magnitude between an office seat and a roofing crew. The rate is on your policy's declarations page. It is the load owners most often forget for field roles, and for a trades hire it can be the largest line after wages.
- Benefits, as context only. The Bureau of Labor Statistics' Employer Costs for Employee Compensation series reported that in June 2026 the average private-industry employer paid $32.82 an hour in wages and $14.07 an hour in benefits -- about 43 cents of benefits for every wage dollar, a figure that includes the legally required taxes and insurance itemized above. It is a national average across every industry and size of employer, not your plan; enter what your plan costs you.
- Overtime. The Fair Labor Standards Act requires not less than one and one-half times the regular rate for hours over forty in a workweek for non-exempt employees (29 U.S.C. 207(a)(1)). Whether a salaried role is exempt depends on its pay basis, pay level and duties, and that is a legal determination about a specific person that neither this page nor the calculator makes. If you are unsure, it is a question for your payroll provider or an employment attorney, and it is a cheaper question before the hire than after.
When This Is Not the Right Starting Point
If the reason you are hiring is that the books are behind and nobody can see the cash position, the hire is not the fix and the cash threshold above is a guess; behind on books and almost missed payroll is where to start. If the person you are considering is already working for you on a 1099 and the hire is really a reclassification, the cost question is the same but the exposure is different: 1099 vs W-2 covers what the back taxes look like and who sizes them. If the alternative to the hire is a machine -- a second truck instead of a second driver, a piece of equipment instead of a subcontractor -- the same whether-at-all test applies to the purchase, and should you buy this equipment at all runs it. And if you cannot answer what the hire would produce because you do not know which jobs make money, busy but not profitable is the gap to close first; it swallows every hiring decision after this one.
If the hire and your own pay are competing for the same dollars -- the raise you have been putting off against the person you would bring on -- run the hire here first, then how much can you pay yourself tells you what the business can hand you after the reserve it needs and the hire it can carry.
If the hire exists because of one contract you have just won and are not sure you can fund, run the contract first: can I afford to deliver this contract adds the new payroll to the job's cash curve and tests whether the business can carry both the hire and the weeks before the customer pays.
Frequently Asked Questions
How much does an employee cost beyond their salary?
Add the employer share of Social Security (6.2 percent up to the annual wage base) and Medicare (1.45 percent), federal unemployment tax (0.6 percent of the first $7,000 after the state credit), state unemployment tax at your state's rate on its wage base, workers' compensation at your policy's rate, benefits, and the recurring costs that follow the seat. In the worked example on this page, a $70,000 salaried role with $650 a month of benefits loads to $88,510 a year, 1.26 times the salary; a field role with a high workers' comp class loads higher. Use your own rates; the multiple is what matters.
How do I know if I can afford to hire someone?
Run three tests from your own numbers. Does the cost the person removes plus the gross profit they add, once productive, exceed their fully loaded monthly cost? Can your cash carry the loaded cost through the ramp with no new revenue at all, without going below the floor you need for payroll, rent and taxes? And if the new work comes in at half, can the cash above your floor carry six months of the shortfall? Pass all three and hire; fail the second and wait until cash reaches the threshold; fail the first and do not hire or re-scope the role.
Is it cheaper to pay overtime or hire another employee?
Per hour, overtime at time-and-a-half is more expensive than a new hire's straight-time loaded rate. Per commitment, it is cheaper: it stops the week the work stops and carries no ramp, no one-time hiring cost and no severance. If the extra load will end within a year, cover it with overtime. If it is permanent, compare the monthly cost of the overtime hours at 1.5x plus employer taxes against the loaded monthly cost of the hire; the breakeven is a number of hours a week, and above it the hire is cheaper.
How much cash should I have before hiring an employee?
Enough to cover your unavoidable monthly outflows for the number of months you refuse to go below, plus the one-time cost of hiring, plus the hire's loaded monthly cost less what the business already adds each month, for every month of the ramp. That total is the cash threshold on the start date. If the business adds more cash each month than the hire costs, the threshold is just your floor plus the one-time cost; if it does not, the ramp is a cash cost you pay in advance.
What is a fully loaded employee cost per hour?
The fully loaded annual cost divided by the hours the person actually works, not the hours they are paid for. A 40-hour employee with fifteen paid days off works about 1,960 hours a year, so an $88,500 loaded cost is about $45 an hour. In year one the training ramp cuts the productive hours further and the effective rate is higher. This is the rate that belongs in a job estimate, not the wage.
Sources
- Internal Revenue Service, Tax Topic 751, Social Security and Medicare Withholding Rates: employer share 6.2 percent and 1.45 percent; 2026 Social Security wage base $184,500; Additional Medicare Tax 0.9 percent is employee-only. Page last reviewed or updated 2026-01-20; read 2026-09-12.
- Internal Revenue Service, Tax Topic 759, Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return: 6.0 percent on the first $7,000 of wages per employee; maximum credit 5.4 percent; net rate after credit 0.6 percent. Page last reviewed or updated 2026-02-25; read 2026-09-12.
- U.S. Department of Labor, Employment and Training Administration, Significant Provisions of State Unemployment Insurance Laws, effective January 2026: per-state taxable wage base and new-employer rate. The new-employer rate shown there is a base rate; industry and other factors in state law can raise it.
- 29 U.S.C. 207(a)(1), Fair Labor Standards Act: overtime at not less than one and one-half times the regular rate for hours over forty in a workweek, for non-exempt employees.
- U.S. Bureau of Labor Statistics, Employer Costs for Employee Compensation, private industry, June 2026: total compensation $46.89 per hour worked, wages and salaries $32.82, total benefits $14.07 (series CMU2010000000000D, CMU2020000000000D, CMU2030000000000D; read 2026-09-12). Context only; not an input.
- Every other number on this page is either the worked example's own arithmetic or comes from your records. No wage, no state rate, and no insurance rate here is a benchmark.
Next Step
If there is a hire on your mind, the first move is the loaded cost and the three tests on your own numbers, before the job posting and before the offer. The employee cost calculator at GetAFractional runs it in about five minutes: the fully loaded cost per month and per productive hour with the employer taxes itemized, the cash threshold, the payback, the overtime comparison, and the four-way verdict, with every field blank until you fill it.
If the answer comes back hire and this is a first employee, the registrations and filings come before the first paycheck; the payroll compliance diagnostic shows what a payroll provider sets up and what stays with you -- see also what a payroll specialist does for the fuller breakdown of that role.
This article is informational and does not constitute financial, legal, or tax advice. Consult a qualified professional for decisions specific to your situation.