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How Much Does an Employee Really Cost? The Salary Multiplier

Most employees cost 1.2 to 1.5 times their salary once taxes, benefits and equipment are added. Here's how to work out the multiplier for your business.

By Muhammad Ahmad. Published . 1 min read.

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When budgeting a hire, salary is the number everyone starts with and the number that most understates the cost. The full cost is usually expressed as a multiplier of salary.

What goes into the multiplier

  • Employer payroll taxes and social contributions, which vary widely by country.
  • Benefits: health cover, pension contributions and other perks.
  • Equipment and software: laptop, licences and tools.
  • Workspace, training and recruiting, spread over the years the person stays.

A worked example

An $80,000 salary with 10% payroll tax, 20% benefits and $6,000 other costs

  1. Employee

    $80,000 × (1 + 10% + 20%) + $6,000equals$110,000

  2. Contractor

    $70.00 × 1,800 hequals$126,000

  3. Break-even rate

    $110,000 ÷ 1,800 hequals$61.11

  4. Difference

    |$126,000 − $110,000|equals$16,000

The employee costs $110,000 a year, a multiplier of 1.38. Many businesses land somewhere between 1.2 and 1.5, depending on country and benefits.

Cost per productive hour

Employees are paid for about 2,080 hours but work fewer after holidays and leave. Dividing the full cost by productive hours gives the real hourly cost: $110,000 ÷ 1,800 hours = $61.11. That's the number to compare with contractor quotes or outsourcing.

Tip: Recalculate the multiplier when benefits or tax rates change; a few points on benefits can move the hiring budget by thousands a year.

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