# True Cost of an Employee Calculator for Trades Businesses

The true cost of an employee is gross wages plus everything the employer pays on top: 7.65% employer Social Security and Medicare, federal and state unemployment tax, workers' comp, benefits and gear. For a $30-an-hour service tech working 40 hours plus overtime, that comes to about $83,015 a year, 24% over wages.

## Key takeaways

- Employers pay 6.2% Social Security (on wages up to $184,500 in 2026) and 1.45% Medicare on top of wages.
- Federal unemployment (FUTA) is usually 0.6% of the first $7,000 per employee, at most $42 a year, after the state credit.
- State unemployment and workers' comp vary a lot by state, trade and claims history. Use your own rates.
- Divide total cost by billable hours, not paid hours, to know what labor really costs a job.

> **Estimate, not payroll or tax advice**
>
> Federal rates are 2026 IRS figures. State unemployment, workers' comp, benefits and billable share are your inputs; the defaults are an illustration, not a benchmark. Local payroll taxes, paid leave mandates and union fringe aren't included. Check with your payroll provider or CPA.

## How do you calculate the true cost of an employee?

Add the employer's payroll taxes, insurance, benefits and other per-person costs to gross wages. Then divide by the hours you can actually bill. The wage on the offer letter is only part of what an employee costs, and a smaller part still of what each billable hour costs.

**Formula**

```
Total cost = W + SS + MED + FUTA + SUTA + WC + B + O
```

Where:
- W = gross wages: regular hours × wage + overtime hours × 1.5 × wage
- SS = 6.2% × wages up to $184,500
- MED = 1.45% × all wages
- FUTA = 0.6% × first $7,000 of wages (6.0% less the 5.4% state credit)
- SUTA = your state rate × wages up to your state's wage base
- WC = workers' comp rate per $100 × wages ÷ 100
- B, O = benefits and other yearly costs (gear, phone, training)

1. **Figure gross wages.** Regular hours times the wage, plus overtime at time and a half for hours over 40 in a workweek. Include paid holidays and vacation.
2. **Add federal payroll taxes.** 6.2% Social Security up to $184,500, 1.45% Medicare, and FUTA on the first $7,000.
3. **Add state unemployment.** Use the rate on your state's notice and your state's wage base. New employers get a starting rate set by the state.
4. **Add workers' comp.** Your policy shows a rate per $100 of payroll for each class code. Field trades pay much more than office staff.
5. **Add benefits and gear.** Health insurance share, retirement match, uniforms, tools, phone, training, payroll fees.
6. **Divide by billable hours.** Multiply paid hours by the share you bill to jobs. That's the real cost behind every hour on an invoice.

> **Worked example**
>
> An HVAC service tech earns $30 an hour for 40 hours plus 2 hours of overtime a week, 52 paid weeks. Gross wages: **$67,080**.
>
> Employer taxes: Social Security $4,159, Medicare $973, FUTA $42, and SUTA $243 at an example 2.7% on a $9,000 state wage base. Workers' comp at an example $4.5 per $100: $3,019.
>
> Add $6,000 of benefits and $1,500 of gear and training: **$83,015 a year**, a 23.8% burden on top of wages.
>
> That's $38.01 per paid hour. At 70% billable, each of the 1,529 billable hours costs **$54.30** before any overhead or profit.

## How much does an employee cost on top of salary?

With the same example inputs, the burden on top of wages runs from 19% at $50 an hour to 30% at $20. It's highest for lower-paid employees because flat costs like benefits, gear and the capped FUTA tax weigh more against a smaller paycheck.

**Cost of an employee by hourly wage (example inputs above)**

| Hourly wage | Gross wages | Total cost | Burden | Per paid hour | Per billable hour |
| --- | --- | --- | --- | --- | --- |
| $20 | $44,720 | $57,938 | 29.6% | $26.53 | $37.90 |
| $25 | $55,900 | $70,477 | 26.1% | $32.27 | $46.10 |
| $30 | $67,080 | $83,015 | 23.8% | $38.01 | $54.30 |
| $35 | $78,260 | $95,554 | 22.1% | $43.75 | $62.50 |
| $40 | $89,440 | $108,092 | 20.9% | $49.49 | $70.70 |
| $50 | $111,800 | $133,169 | 19.1% | $60.97 | $87.11 |

_Computed by the calculator with 2026 federal rates and the example state, workers' comp, benefit and billable-share inputs. Your rates will differ._

## Which employer payroll taxes do you pay in 2026?

**Federal employer payroll taxes for 2026**

| Tax | Employer rate | Wage limit |
| --- | --- | --- |
| Social Security | 6.2% | First $184,500 per employee |
| Medicare | 1.45% | No limit |
| Additional Medicare Tax | None for the employer | You withhold 0.9% from the employee's wages over $200,000 |
| FUTA | 6.0%, usually 0.6% after the 5.4% state credit | First $7,000 per employee |

_Sources: IRS Publication 15 (2026), Topics 751 and 759. Employers in a FUTA credit reduction state pay more; the Department of Labor names those states each year._

Overtime is still subject to employer Social Security and Medicare tax, even though employees may be able to deduct some qualified overtime pay on their own returns. The employer cost of an overtime hour is 1.5 times the wage plus the same payroll taxes.

## Why cost per billable hour matters

A tech paid for 2,000-plus hours doesn't bill 2,000-plus hours. Drive time, shop time, callbacks, training and weather eat into it. If you set your labor rate from the wage, or even from cost per paid hour, every unbilled hour comes out of your profit. Use cost per billable hour as the floor in your [contractor hourly rate](https://www.brix.so/tools/contractor-hourly-rate-calculator), then add overhead and margin.

## Common mistakes

- **Pricing off the wage.** The burden and unbilled hours make a $30 tech cost far more per billed hour.
- **Forgetting paid time off.** Holidays and vacation are paid hours with no billable work.
- **Using one workers' comp rate for everyone.** Field and office class codes have very different rates.
- **Treating employees as 1099 subs to skip payroll tax.** Misclassification can mean back taxes and penalties. Compare both honestly with the [1099 vs. W-2 calculator](https://www.brix.so/tools/1099-vs-w2-calculator).

BRIX tracks crew timesheets against jobs and syncs labor costs to QuickBooks, so you can see what each job's labor really cost, not just what you paid in wages.

- [Crew timesheets](https://www.brix.so/#use-cases): Clock-ins, job hours and payroll-ready timesheets.
- [QuickBooks sync](https://www.brix.so/integrations/quickbooks): Syncs customers, invoices and payments with QuickBooks so the books match the jobs.
- [Bookkeeping and tax help](https://www.brix.so/features/bookkeeping-taxes): Keeps expenses categorized, tracks 1099 subcontractors and sales tax, and reminds you of quarterly estimated tax dates. BRIX does not file taxes or give tax advice.

## Frequently asked questions

### How much does an employee cost on top of their wage?

It depends on wage, state and benefits. In this page's example, a $30/hour tech costs 24% more than gross wages once employer taxes, workers' comp, benefits and gear are added. Lower wages and richer benefits push the percentage higher.

### What payroll taxes does an employer pay?

Federally, 6.2% Social Security on wages up to $184,500 for 2026, 1.45% Medicare on all wages, and FUTA, usually 0.6% of the first $7,000. Most states add unemployment tax, and some have other payroll taxes.

### What is the FUTA tax rate for 2026?

6.0% of the first $7,000 of each employee's wages. Employers who pay state unemployment tax in full and on time get up to a 5.4% credit, so the usual net rate is 0.6%, or $42 per employee per year. Credit reduction states pay more.

### How do I find my SUTA rate?

Your state unemployment agency mails a rate notice each year, based on your industry and claims history. New employers get a starting rate set by the state. The taxable wage base also differs by state.

### What is labor burden?

Labor burden is everything you pay for an employee beyond gross wages: payroll taxes, workers' comp, benefits and similar costs, often shown as a percentage of wages. See the [labor burden calculator](https://www.brix.so/tools/labor-burden-calculator) to build it into your rates.

### Is it cheaper to hire a 1099 subcontractor?

Sometimes per hour, but you don't get to choose freely. Whether someone is an employee depends on how much control you have over the work, not on what you call them. Compare costs in the [1099 vs. W-2 calculator](https://www.brix.so/tools/1099-vs-w2-calculator) and classify by the IRS rules.

## Related

- [Labor Burden Calculator](https://www.brix.so/tools/labor-burden-calculator)
- [1099 vs. W-2 Cost Calculator: Employee or Subcontractor?](https://www.brix.so/tools/1099-vs-w2-calculator)
- [How Much to Charge per Hour as a Contractor](https://www.brix.so/tools/contractor-hourly-rate-calculator)
- [What Are Payroll Taxes?](https://www.brix.so/learn/payroll-taxes)
- [What Is Labor Burden?](https://www.brix.so/learn/labor-burden)
- [W-2 vs. 1099: What's the Difference for Contractors?](https://www.brix.so/learn/w2-vs-1099)
- [How to Hire Technicians and Build a Pay Plan That Works](https://www.brix.so/guides/hire-and-pay-technicians)
- [Job Pricing Calculator for Contractors](https://www.brix.so/tools/job-pricing-calculator)
- [Missed Call Revenue Calculator](https://www.brix.so/tools/missed-call-calculator)
- [Customer Lifetime Value Calculator](https://www.brix.so/tools/customer-lifetime-value-calculator)

## Sources

- [IRS Publication 15 (Circular E), Employer's Tax Guide, for use in 2026](https://www.irs.gov/pub/irs-pdf/p15.pdf) (checked 2026-10-12)
- [IRS Topic No. 751, Social Security and Medicare Withholding Rates](https://www.irs.gov/taxtopics/tc751) (checked 2026-10-12)
- [IRS Topic No. 759, Form 940, Employer's Annual FUTA Tax Return](https://www.irs.gov/taxtopics/tc759) (checked 2026-10-12)
- [IRS Topic No. 560, Additional Medicare Tax](https://www.irs.gov/taxtopics/tc560) (checked 2026-10-12)

---
Written by BRIX Editorial Team. Last updated 2026-10-12. General information, not tax, legal or financial advice.
Canonical: https://www.brix.so/tools/payroll-cost-calculator