Use this free employee cost calculator to find the true all-in cost of hiring — wages, employer FICA, state unemployment, workers' comp, and insurance. Enter your own numbers to see the real hourly cost before you hire.
Calculate True Employee Cost
Annual Wages$0.00
Employer Payroll Tax$0.00
Workers' Comp$0.00
Annual Health Insurance$0.00
Total Annual Cost$0.00
True Cost per Hour$0.00
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As an employer you are required to pay the employer share of FICA taxes — 6.2% for Social Security (up to the annual wage base) and 1.45% for Medicare, totalling 7.65%. You must also pay Federal Unemployment Tax (FUTA) at 6% on the first $7,000 of each employee's wages, though most employers qualify for a 5.4% credit reducing the effective rate to 0.6%. Many states also have a State Unemployment Tax (SUTA) with rates that vary by state and your claims history. These taxes are on top of the employee's gross wages — they do not come out of the employee's pay.
Workers' comp rates for trade occupations vary significantly by state, trade type, and your company's claims history. Electricians typically attract rates of 3—6% of payroll; roofers and concrete workers can be 10—20% or higher due to elevated injury risk. Landscapers and painters generally sit in the 4—8% range. New employers often pay higher rates until they establish a claims record. Check with your state's workers' comp authority or a commercial insurance broker for rates specific to your trade and location — the default 2% in this calculator is a conservative estimate for lower-risk trade work only.
Under the ACA, employers with 50 or more full-time equivalent employees are required to offer health coverage or face penalties. Most small trade businesses have fewer than 50 employees and are not legally required to provide health insurance. However, offering at least a partial health benefit is increasingly important for attracting and retaining skilled trade workers in a competitive labor market. If you contribute to employee health premiums, those contributions are tax-deductible as a business expense and excluded from the employee's taxable income, making them a tax-efficient form of compensation for both parties.
Use the true cost per hour from this calculator — not the hourly wage — as your labor cost base when building a quote. If your employee costs $28/hr all-in and you apply a 30% markup on labor, you charge the client $36.40 per labor hour. This approach ensures every job fully covers the employee's real cost plus a profit contribution. Never quote employee labor at the base wage rate — doing so means you lose money on every hour they work because you still have to pay the employer taxes and insurance out of your own margin.
Subcontractors (1099 workers) can appear cheaper because you avoid payroll taxes, workers' comp, and benefits. However, the IRS applies strict criteria to determine whether a worker is genuinely an independent contractor — misclassifying employees as contractors can result in back taxes, penalties, and interest. Genuine subcontractors set their own hours, work for multiple clients, use their own tools, and control how the work is done. If a worker only works for you, follows your instructions, and uses your equipment, they are almost certainly an employee. When legitimate, subcontracting offers flexibility; when misused, it creates significant legal and financial risk.