When evaluating the financial impact of employees, it’s important to look beyond just the base salary. The true cost of an employee includes a range of additional expenses such as payroll taxes, insurance, retirement contributions, and other fringe benefits. These extra costs can increase total compensation by 20% or more, depending on the size of the business and the benefits offered.

The most obvious starting point is gross salary or wages, which is what the employee sees on their paycheck. However, employers are also responsible for payroll taxes, including the employer’s share of Social Security (6.2%) and Medicare (1.45%). These mandatory contributions amount to 7.65% of wages. In addition, employers may owe federal and state unemployment taxes (FUTA and SUTA), which can vary significantly by state. While these taxes are mandatory, the employee has a real benefit in the form of Social Security payments at retirement. The employer is essentially paying 50% of the contributions.

Next come employee benefits, which can be substantial. One of the biggest is health insurance. The portion of health insurance that employees typically pay can vary by employer size, industry, region, and plan type, but here are the general averages based on 2023 data from the Kaiser Family Foundation:

Employee Contributions (2023 Averages):

• Single Coverage:
  • Employee pays: About 17% of the premium
  • Employer pays: About 83%
• Family Coverage:
  • Employee pays: About 29% of the premium
  • Employer pays: About 71%

Dental and vision insurance are often included as well.

Retirement plans, such as a 401(k), may include employer matching contributions—often 3% to 6% of salary. While not mandatory, these benefits are key to attracting and retaining talent, particularly in competitive industries.

Paid time off (PTO) is another hidden cost. Whether for vacation, holidays, or sick leave, this represents paid days when employees aren’t actively working but are still earning their regular wages.

Other fringe benefits may include life insurance, disability insurance, tuition assistance, employee wellness programs, and even commuter or child care benefits.

All told, a $60,000 salary may result in a total cost of $75,000 or more once benefits and overhead are factored in. Employers should be aware of these costs when budgeting for growth, setting compensation levels, or considering alternatives such as outsourcing or automation.

Best practice is to add all these costs up and provide to the employee so they understand their total cost. We have included a summary Excel worksheet you can use to generate your own compensation and benefit worksheet: CLICK HERE FOR WORKSHEET

If you have questions, contact your Dent Moses advisor.