When a small business owner decides what they can afford to pay a new hire, they usually think in salary. The problem is that salary is only part of what the employee actually costs. By the time you add everything an employer is required to pay and everything it takes to actually employ someone, the real number runs 25 to 40 percent above the salary. Budgeting off the salary alone is how companies end up stretched the quarter after they hire.
Here is the honest math, and how to plan for it.
Start with the salary, then add the mandatory costs
These are not optional. If you employ someone, you pay them.
Employer payroll taxes
On top of the wages the employee sees, the employer pays its own share: 6.2 percent for Social Security and 1.45 percent for Medicare, which is 7.65 percent of wages right there. Then federal unemployment tax (FUTA) and state unemployment tax (SUTA), which vary by state and by your company's experience rating. Together, employer payroll taxes usually add 8 to 10 percent on top of salary.
Workers' compensation insurance
Required in almost every state for almost every employer. The rate depends on your industry and payroll, from a fraction of a percent for office work to several percent for physical trades.
Then the benefits and overhead
These vary by company, but for most small businesses they are the largest line after salary.
- Health insurance. If you offer it, the employer typically covers a large share of the premium. This is often the single biggest add-on after salary.
- Retirement match, if you offer a 401(k) with matching.
- Paid time off. PTO is salary you pay for time not worked, so it is a real cost even though it hides inside the salary number.
- Equipment and software. Laptop, phone, desk, and the per-seat cost of every tool the person needs.
- Payroll and HR administration. The cost of actually running payroll, benefits, and compliance for one more person.
The one-time costs people forget
Beyond the recurring cost, every hire carries one-time costs that hit in the first few months:
- Recruiting. Job board fees, your time or a recruiter's, interviewing hours across the team.
- Onboarding and training. The new hire is not fully productive on day one, and the people training them are pulled off their own work. This ramp is a real, if invisible, cost. (A structured onboarding process shortens it.)
- The cost of a bad hire. If it does not work out, you absorb the full ramp cost plus the cost to re-hire. This is why getting the hire right matters more than filling the seat fast.
Why this matters for the fractional-vs-full-time decision
The true-cost math is exactly why many small businesses use fractional help for specialized roles like HR. A full-time HR manager is not a $75,000 decision, it is closer to a $95,000 to $115,000 all-in commitment once you load it, for a role you may not have 40 hours a week of work for. Fractional support gives you the senior expertise at a fraction of the loaded cost, sized to what you actually use. (See the full cost comparison.)
The bottom line
An employee costs 25 to 40 percent more than their salary once you add mandatory taxes, benefits, and overhead, plus one-time recruiting and ramp costs. Plan every hire off the loaded number, not the salary, and you will not get caught short the quarter after you grow. If you want help thinking through whether to hire, contract, or go fractional for a given role, that is exactly the kind of thing we do.
Written by the Bevel HR team, senior fractional HR for US small businesses. General guidance, not legal advice; confirm specifics for the states you operate in.