Free calculator · Business
Cost of an Employee Calculator
Thinking of taking someone on? A wage is only half the story. Work out what a hire truly costs, and whether they will pay for themselves at your rates, before you make the leap.
The short version
An employee costs far more than their wage. Add employer on-costs, their van, tools and kit, then spread it over the hours they can actually bill (not the hours you pay for) and the real cost is often 50% or more above the wage. This works out that true cost, and whether they turn a profit at your charge-out rate.
True cost per billable hour = (Wage + on-costs + extras) ÷ billable hours a year
Why the wage is only half the story
Say you take someone on at $25 an hour and think that is what they cost. It is not close. On top of the wage sit employer taxes and pension, a van and fuel, tools, a phone, workwear, insurance and training. And here is the killer: you pay them for the full year, but they only actually work part of it, and only some of those hours can be charged to a customer.
A $25 wage often works out nearer $35 to $40 for every hour they actually work, and higher still per hour you can bill. That is the number that matters when you are deciding whether you can afford them.
What they need to earn
Once you know the true cost per billable hour, you know the least you can charge for their time and break even. Bill them out below it and every job they touch loses you money. A common rule of thumb is to charge a hire out at roughly two to three times their wage, but do not guess, work it out from your own numbers.
Can you actually afford it?
- They pay for themselves only if you keep them busy. The maths falls apart fast if billable hours drop, because the cost is fixed but the income is not.
- Allow for ramp-up. A new hire is rarely fully productive on day one. Build in a few slower months.
- Have a buffer. You are taking on a fixed wage in a business with a variable income. Make sure a quiet spell will not sink you.
Questions tradespeople ask
How much does an employee really cost above their wage?
Once you add employer on-costs, a van and tools, and the fact that only part of their paid time is billable, a hire typically costs somewhere from 30% to well over 50% more than their wage per hour worked, and more again per billable hour. The exact figure depends on your on-costs and how busy you keep them.
What are employment on-costs?
The extra costs an employer pays on top of the wage: employer tax or national insurance, pension or superannuation contributions, and any payroll or employment levies. They vary by country, which is why the calculator takes them as a percentage you can set.
What should I charge out an employee at?
At least their true cost per billable hour, or you lose money on their work. Many trades charge a hire out at roughly two to three times their wage to cover the true cost and leave a profit, but the right number comes from your own figures, not a rule of thumb.
Should I hire an employee or use subcontractors?
Subcontractors are flexible and carry no on-costs, but cost more per hour and give you less control. Employees are cheaper per hour if you can keep them consistently busy, but you carry the fixed wage whether the work is there or not. This calculator helps you see the employee side clearly.
How do I know if I can afford to hire?
Work out the hire's true cost per billable hour, then check they can be billed out comfortably above it for enough hours to turn a profit. If the numbers only work when they are flat out every week, you probably are not ready yet. Keep a buffer for quiet spells and ramp-up time.
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