Question 1

How much does an employee really cost beyond salary?

Accepted Answer

Typically 1.25 to 1.4 times gross pay once employer FICA (7.65 percent), federal and state unemployment tax, workers compensation, health insurance, retirement match, and equipment are counted. A $60,000 salary commonly lands between $75,000 and $84,000 of true annual cost.

Question 2

What employer taxes do I pay on payroll?

Accepted Answer

Employers match Social Security (6.2 percent) and Medicare (1.45 percent), pay FUTA of up to $420 per employee per year on the first $7,000 of wages (usually $42 after the state credit), and pay state unemployment tax at a rate set by your state and claim history, on a state wage base.

Question 3

What should I bill a billable employee at?

Accepted Answer

Start from cost per productive hour, not wage. After PTO, holidays, and realistic utilization of 65 to 80 percent, a $40 per hour loaded cost often means $55 or more per productive hour, and a healthy service margin needs a bill rate of 2 to 3 times that loaded hourly cost.

Question 4

Is a contractor cheaper than an employee?

Accepted Answer

A 1099 contractor avoids employer taxes and benefits, so a matching rate can cost 20 to 30 percent less loaded. But misclassifying an employee as a contractor carries back taxes and penalties, and the IRS and state tests hinge on control over how work is done, not what the contract says.

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