{"id":3902,"date":"2018-11-29T13:00:02","date_gmt":"2018-11-29T12:00:02","guid":{"rendered":"https:\/\/beebole.com\/blog\/?p=3902"},"modified":"2025-12-09T15:38:51","modified_gmt":"2025-12-09T14:38:51","slug":"how-to-calculate-the-real-cost-of-an-employee","status":"publish","type":"post","link":"https:\/\/beebole.com\/blog\/how-to-calculate-the-real-cost-of-an-employee","title":{"rendered":"The true cost of employees: Calculate employee cost with this labor cost spreadsheet"},"content":{"rendered":"\n

Understanding the true cost of employees is crucial for any business looking to manage resources effectively. That’s why we’ve created this free spreadsheet download<\/a> and video tutorial<\/a> with detailed instructions and formulas to easily calculate employee cost<\/strong> at your company, as well as to forecast<\/strong> new hires. It’s more than just base salaries; it encapsulates a variety of associated expenses. It’s key to understand that employers pay more than just the salaries of their employees<\/em>. Here we’ll explore the main variables to help calculate the actual annual cost of your workforce. <\/p>\n\n\n\n

We’ll help you analyze these costs in-depth, shedding light on the full financial impact employees have on an organization’s bottom line. <\/p>\n\n\n

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Note: How much does an employee cost?<\/em><\/strong> This article addresses some of the primary considerations you need to know when hiring someone in the private sector in the United States<\/strong>. <\/p>\n\n\n\n

Some of the information you will find here is easily adaptable to other countries, like social security related expenses. Our particular case is based on salaried<\/em> employees as opposed to hourly rate<\/em> workers. While many employers and institutions (including the Bureau of Labor Statistics of the U.S. Department of Labor) prefer to work around hours rather than salaries, we have opted for the latter to give you a better idea of the real annual costs of your employees.<\/p>\n\n\n\n

Simple formulas to calculate the cost of employees<\/h2>\n\n\n\n

Calculating your labor rates is a complex exercise<\/strong> that requires a careful examination of different variables<\/strong> like the industry<\/em> you belong to, the type and characteristics of the role<\/em> you are planning to cover, the location<\/em> of your company, and the kind of benefits<\/em> and legal<\/em> expenses you are willing and required to pay for that employee. While this may be intimidating at first, there are some basic variables<\/strong> that will always affect your labor rates. We will explore those variables so you can better calculate the potential costs posed by a new hire.<\/p>\n\n\n\n

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The cost of employees: What is exactly “the base salary”?<\/h2>\n <\/div>\n
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The base salary in the U.S. is the fixed amount of money an employee gets before any extras are added or taken off.<\/strong> It doesn’t include bonuses, overtime, or any other potential compensation from the employer. It’s often paid out in yearly or monthly terms, and can vary widely based on the role, industry, and location.<\/p>\n <\/div>\n <\/div>\n<\/div>\n\n\n

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The cost of employees: What needs to be added to base salary?<\/h2>\n <\/div>\n
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Let’s start our example: If you want to hire someone on a salary of, say, $30,000 a year<\/strong>, you need to be prepared to pay much more than that. In addition to the base salary, you need to cover other things like employment taxes and benefits<\/strong> (e.g. health insurance, 401(k)). While this calculation is complex, there are some simple formulas<\/strong> we can use to have an idea of the actual annual cost of an employee. We chose the following 2.<\/p>\n <\/div>\n <\/div>\n<\/div>\n\n\n

Let’s start with Joe Hadzima, a Senior Lecturer at MIT<\/strong> who provides a simple formula to calculate the actual cost of an employee<\/strong>. According to Hadzima<\/a>, once you have taken into consideration basic salary, taxes, and benefits, the actual costs of your employees are typically somewhere between 1.25 to 1.4 times the base salary. In other words, an employee earning $30,000 will cost you somewhere between $37,500 and $42,000.<\/p>\n\n\n\n

Similarly, and while trying to answer the question, \u201cHow much does an employee really cost?\u201d CNN\u2019s reporter Jose Pagliery<\/strong> said<\/a> that the real salary of an employee ends up \u201cbeing 18% to 26% more than a worker\u2019s base salary.\u201d That said, let\u2019s take the formulas we have just mentioned and see how they work for specific salaries:<\/p>\n\n\n\n

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How much should I pay for an employee?<\/td>\n<\/tr>\n
Employee\u2019s base salary<\/td>\nReal annual cost per employee
Hadzima (1.25 to 1.4 times of base salary)<\/td>\n		Real annual cost per employee
Pagliery (18% to 26% more than base salary)<\/td>\n<\/tr>\n<\/thead>\n
$30,000<\/strong><\/td>\n$37,500\/42,000<\/td>\n$35,400\/$37,800<\/td>\n<\/tr>\n
$40,000<\/strong><\/td>\n$50,000\/56,000<\/td>\n$47,200\/50,400<\/td>\n<\/tr>\n
$50,000<\/strong><\/td>\n$62,500\/70,000<\/td>\n$59,000\/63,000<\/td>\n<\/tr>\n
$60,000<\/strong><\/td>\n$75,000\/84,000<\/td>\n$70,800\/75,600<\/td>\n<\/tr>\n
$70,000<\/strong><\/td>\n$87,500\/98,000<\/td>\n$82,600\/88,200<\/td>\n<\/tr>\n
$80,000<\/strong><\/td>\n$100,000\/112,000<\/td>\n$94,400\/100,800<\/td>\n<\/tr>\n
$90,000<\/strong><\/td>\n$112,500\/126,000<\/td>\n$106,200\/113,400<\/td>\n<\/tr>\n
$100,000<\/strong><\/td>\n$125,000\/140,000<\/td>\n$118,000\/126,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table><\/div>\n<\/figure>\n\n\n\n

As we can see, the two formulas provide similar numbers that we can take as an idea of the potential cost of a new hire. However, we will now explore the essential ingredients<\/em> you need to know in order to calculate your labor costs. We will come back to these numbers to see how they compare with our findings.<\/p>\n\n\n\n

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What is the cost of employee benefits called?<\/h2>\n <\/div>\n
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The cost of employee benefits is often referred to as “benefit expense<\/strong>” or “employee benefits expense.<\/strong>”\u00a0These terms refer to the total cost that a company incurs to provide benefits such as health insurance, retirement contributions, tuition reimbursement, paid time off, and other perks to its employees. The expense is a significant portion of an employee’s total compensation, beyond their base salary.<\/p>\n <\/div>\n <\/div>\n<\/div>\n\n\n

Factors that affect base salary<\/h2>\n\n\n\n

The base salary<\/strong> is affected by some of the factors we mentioned at the beginning of this article. Location<\/em>, for instance, affects salaries in a decisive way even if we are considering the same role. Costs of living are the main drive, as you can see from the following chart we created using the cost of living calculator<\/a> from CNNMoney.<\/p>\n\n\n\n

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From \/ To<\/td>\nMiami<\/td>\nSan Antonio<\/td>\nNew York<\/td>\nDenver<\/td>\nSan Francisco<\/td>\n<\/tr>\n<\/thead>\n
Miami<\/td>\n$40,000<\/td>\n$30,769<\/td>\n$83,322<\/td>\n$39,091<\/td>\n$67,343<\/td>\n<\/tr>\n
San Antonio<\/td>\n$52,000<\/td>\n$40,000<\/td>\n$108,318<\/td>\n$50,818<\/td>\n$87,545<\/td>\n<\/tr>\n
New York<\/td>\n$19,203<\/td>\n$14,771<\/td>\n$40,000<\/td>\n$18,766<\/td>\n$32,329<\/td>\n<\/tr>\n
Denver<\/td>\n$40,930<\/td>\n$31,485<\/td>\n$85,259<\/td>\n$40,000<\/td>\n$68,909<\/td>\n<\/tr>\n
San Francisco<\/td>\n$23,759<\/td>\n$18,276<\/td>\n$49,491<\/td>\n$23,219<\/td>\n$40,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table><\/div>\n<\/figure>\n\n\n\n

Based on the above, if you live in Miami with a salary of $40,000, a comparable salary in Manhattan would be around $83,322 just because the costs of living in New York City are much higher than in the Miami-Dade County area. However, a comparable salary in San Antonio, Texas, where the cost of living is lower than in Miami, would be around $30,769. Again, this calculator is useful in terms of providing an indication of how your salary will compare in different cities across the country, taking into consideration things like housing, groceries, utilities, transportation, and health care.<\/p>\n\n\n\n

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What factors affect base salary?<\/h2>\n <\/div>\n
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Several factors can affect the base salary of an employee in the U.S., including:<\/p>\n