What Payroll Really Costs Per Employee

The employer taxes (unavoidable layer)

• Social Security & Medicare (FICA): 7.65% of wages, the flat, everywhere, always tax. You match what the employee pays
• Federal unemployment (FUTA): 6% on the first $7,000, reduced to 0.6% with state credit, call it $42/employee/year in normal states
• State unemployment (SUI): your assigned rate on a state wage base, new employers typically start around 2–4%; claims history moves it. A real but modest line, usually a few hundred dollars per employee annually

Workers' comp: the industry-dependent giant

Comp premiums are rates per $100 of payroll, set by class code, and the spread is the story: clerical office work runs pennies; landscaping, roofing, and tree work run $5–$25+ per $100 (5–25%+ of wages). For field-service businesses, comp is routinely the second-largest labor cost after wages, which makes correct class codes and clean payroll allocation genuinely valuable, misclassified payroll surfaces in the annual comp audit as a surprise bill. ( 1099 or W-2? The Tests That Decide, and the Penalties If You're Wrong ↗ is where owners tempted to '1099 it away' should pause.)

The machinery: running payroll itself

• Software (Gusto, QuickBooks Payroll, ADP tier): $40–$150/month base plus $6–$15 per person
• Or bundled into a bookkeeping relationship, our model, where processing, filings, and the job-cost allocation ride the monthly fee ( Payroll Administration for Small Businesses ↗)
• Hidden line: your time. Owner-run payroll costs 2–5 hours a month of the most expensive labor in the company

Worked example: the $25/hour field tech

Full-time at $25/hour ≈ $52,000/year. FICA $3,978. FUTA $42. SUI (2.5% on a $10K base, illustrative) $250. Workers' comp at $6 per $100 for the trade: $3,120. Payroll software share: $250. Total ≈ $59,640, about 14.7% over wage before a dollar of benefits, PTO, training, truck, or phone. At trades comp rates of $12/100, the same tech crosses $62,700. This is the number that belongs in your job costing as the labor burden, bidding jobs at $25/hour labor when labor costs $30+ is how busy companies lose money. ( Job Costing in QuickBooks Online: The Contractor Setup That Actually Works ↗)

Benefits, if and when

Health insurance ($400–$700+/month single coverage employer share), retirement match (commonly 3–4% of wages), and PTO (every paid day off is wage without production, roughly 4% per two weeks) move total burden toward 25–40% over wage. Small service businesses compete on the first layer (fair wage, steady hours) long before matching corporate benefit stacks, but model them before promising them.