Deimar Gutiérrez
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Cost of hiring an employee

What one hire really costs in year one, and what it does to your runway.

2 questions. Typical defaults fill the rest; your result lists them.

Essentials Start here.

Base pay for the role.

Optional. 1 = January. Shows the part of the cost in this calendar year.

Fine-tune Sharpens the answer. Leave a box blank if you are unsure.

US default: employer FICA, 7.65%.

Optional. Health, retirement match and other benefits.

Optional. Laptop, licenses, desk or seat.

Optional. Paid once, at the start.

Optional. Enter 0 to leave the gap out.

Advanced Extra measures for experts. All optional.

Optional. 50 means half of a full-speed employee.

Optional. Leave blank for roles that do not sell.

Optional. With , shows the this hire uses.

Optional. Cash out minus cash in, per month.

Optional. Sets the contractor break-even rate. A rule of thumb.

Private: calculated in your browser, never sent. Any currency works; read $ as yours.

Your result

Example result

Year-1 cash cost

$123,885

Where year-one cash goes

From left: salary $90,000, cost on top of salary $33,885 (payroll tax, benefits, equipment and recruiting), out of $123,885 in year one.

This hire costs $123,885 in year one in cash.

Example numbers: Annual salary $90,000 · Start month 7. Typical defaults fill the rest. Type your own numbers above to replace this example.

How this calculator works: the formulas, what the result means and its limits

How the cost of hiring formula works

Year-1 cash cost = salary + employer payroll tax + benefits + equipment, software and space + recruiting. This is the headline.

Ramp-up gap (estimate, not cash) = salary × months to full productivity ÷ 12 × (1 − average productivity during ramp). It is an opportunity-cost heuristic, kept out of the headline and shown on its own line. Set the months to 0 to leave it out.

Worked example. Salary 90,000. Payroll tax 7.65% = 6,885. Benefits 12,000. Equipment, software and space 3,000. That is a recurring cost of 111,885, which is also the year-2 run-rate (1.24× salary). Add 13,500 of recruiting for a year-1 cash cost of 125,385 (1.39× salary). A ramp of 3 months at 50% productivity adds a gap of 90,000 × 3 ÷ 12 × 0.5 = 11,250, so the cost including the gap is 136,635 (1.52×).

Optional extras sit under Advanced. For a role that brings in revenue, revenue needed = year-1 cash cost ÷ gross margin (125,385 ÷ 0.6 = 208,975 at a 60% margin). Leave the margin blank for other roles. With cash and net burn, the calculator shows how many months of runway the hire uses. The contractor break-even rate is the year-1 cash cost divided by the days a contractor would work, 220 as a rule of thumb; the year-2 break-even uses the run-rate without recruiting. The chart shows monthly cash cost: month 1 carries the one-time recruiting cost, then the cost is flat.

What this calculator does not do

  • It does not decide whether to hire. It gives you the cost, so you decide with the real number.
  • The payroll-tax default is the US employer rate and ignores the Social Security wage cap and state taxes. Confirm rates with your payroll provider.
  • It does not include severance, raises, bonuses or taxes that depend on the country, role or contract.
  • The runway effect is simple: the hire’s monthly cost is added to your burn and recruiting comes out of cash. For a stricter view, use the real cash from the runway calculator. It assumes the person starts now.

Frequently asked questions

How much does an employee really cost?

More than salary. Add the employer payroll tax, benefits, equipment and software, and the cost of recruiting. In the worked example, a 90,000 salary costs 125,385 in cash in the first year.

Why is the ramp-up gap not in the headline?

The headline is cash that leaves your bank. The ramp-up gap is the output you pay for but do not yet receive. It is a real cost, but it is an estimate, so it sits on its own line.

Is 7.65% the right payroll tax rate?

It is the US employer FICA rate: 6.2% Social Security plus 1.45% Medicare. Social Security stops at an annual wage base, so for high salaries the true rate is lower. State unemployment tax is extra. Outside the US, use your own rate.

When is hiring cheaper than a contractor?

The contractor-equivalent rate shows the day rate at which a contractor costs the same as this hire over the first year. If you can buy the same work for less, a contractor is cheaper for that work. If you need the work for years, compare with the year-2 run-rate.