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What is an employee cost calculator?
An employee cost calculator shows the total annual cost of a hire — not just the salary, but every dollar that leaves your business because of that person. For a $75,000 salary, the real number is typically $100,000–$115,000 once you include employer payroll taxes, benefits, paid time off, equipment, and overhead. That gap is what makes budgeting from salary alone so dangerous.
The gap is captured in the cost multiplier: a single number that tells you how many dollars you spend for every dollar of salary. A multiplier of 1.42 means a $70,000 salary costs $99,400 in total. Most agency owners and small business founders underestimate this by 20–40%, which is where margin problems begin.
How the formulas work
The calculator uses the standard 2,080 annual working hours (52 weeks × 40 hours), then subtracts paid time off to get the actual hours a hired employee is available and productive.
For example, an $80,000 salary with 25% benefits, 15 PTO days, $2,000 in equipment, and $1,200 in software gives a total annual cost of $104,200 — a multiplier of 1.30 and a true hourly rate of $51.68. At a 30% target margin, you need to bill that person at $73.83/hr to protect profitability. Note that the Target Rate formula divides by (1 − Margin) rather than multiplying by (1 + Margin) — this is the correct approach when margin percentage is what you are protecting.
How to use this calculator
Base Pay. Enter the annual salary and select your currency (USD, GBP, or CAD). The cost multiplier updates in real time as you fill in the other fields.
Taxes and Benefits. Enter total employer overhead as a percentage of salary. In the US, this starts at 7.65% for FICA (Social Security and Medicare) and typically reaches 25–35% once you add health insurance, a 401(k) match, and other perks. In the UK, Employer National Insurance runs at 13.8%, bringing a typical total to 20–25%.
Overhead. Include annual software subscriptions, equipment depreciation, and any allocated office or workspace cost. A typical remote employee adds $1,200–$2,500/year in software and hardware. If the person is fully remote with no dedicated desk, set office to $0.
Target Margin and the Employee vs Contractor tab. Set the margin you need to hit when billing this employee to clients. Then switch to the Employee vs Contractor tab to compare the annual total against an equivalent contractor rate — the calculator shows which option is cheaper and by how much. Use this alongside the ROI Calculator to evaluate the full return on the hire before you extend an offer.