What an employee really costs you
On top of wages, you pay 7.65% in Social Security and Medicare, plus federal and state unemployment tax. Add workers' compensation and any benefits, and a common planning rule is 1.1 to 1.3 times the salary. So a $50,000 employee often costs about $55,000 to $65,000 a year.
Updated November 2026 · By Pankil Kumar, Managing Partner
Quick facts
- Employer FICA. 6.2% Social Security plus 1.45% Medicare
- Federal unemployment. Usually 0.6% of the first $7,000 per employee
- Rule of thumb. Budget 1.1 to 1.3 times the salary
What are the employer payroll taxes?
| Tax | Rate for 2026 | On what |
|---|---|---|
| Social Security | 6.2% | Wages up to $184,500 |
| Medicare | 1.45% | All wages |
| Federal unemployment | 6.0%, usually 0.6% after credit | First $7,000 per employee |
| State unemployment | Varies by state and history | State wage base |
The FUTA rate is 6.0%, but most employers get a credit of up to 5.4% for paying state unemployment on time. That brings it down to 0.6%, or $42 per employee.
Can you walk through an example?
Take a $50,000 employee.
| Item | Annual cost |
|---|---|
| Wages | $50,000 |
| Social Security and Medicare, 7.65% | $3,825 |
| FUTA | $42 |
| State unemployment, example | $300 |
| Workers' compensation, example | $500 |
| Health benefit, example | $3,000 |
| Total | $57,667 |
State unemployment and workers' compensation vary a lot by state, industry and claims history, so swap in your own numbers.
What other costs are easy to forget?
Paid time off, overtime, payroll software, training, equipment and the time it takes to get someone productive. None of these appears on a tax form, and all of them are real. Budget for the first three months as a slower period.
Does the employee's withholding cost you anything?
Not directly. Income tax and the employee's 7.65% come out of their pay, and you hold them in trust until you deposit them. But you're responsible for sending them in. Missing a deposit gets expensive because of it.
Is a contractor cheaper?
Sometimes, on paper. You skip payroll taxes and benefits, but you'll often pay a higher rate, and you can't choose contractor status just to save money. The IRS looks at the actual work.
Before you hire, run it through your numbers. Our planning service can model a hire against your cash flow if you want a second pair of eyes.
Sources
- IRS Topic 751: Social Security and Medicare withholding rates
- IRS Publication 15: Employer's tax guide
General information, not tax advice for your situation.
How much is employer payroll tax on $100,000?
Social Security and Medicare come to $7,650, plus federal and state unemployment tax, which are usually small amounts.
Do employers pay Social Security on all wages?
No. The 6.2% stops at the yearly wage base, $184,500 for 2026. Medicare has no cap.
Are payroll taxes a deductible business expense?
Yes. The employer share of payroll taxes is generally a deductible business expense, along with the wages themselves.
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