An employee costs much more than their wage. In the U.S., employer payroll taxes (Social Security, Medicare, unemployment insurance) add about 8–10%, and benefits such as health insurance and retirement contributions often add another 20–30%.
How to use the Labor Cost Calculator
- Hourly pay rate
- Paid hours per week
- Paid weeks per year
- Paid days not worked (holidays, vacation, sick)
- Employer payroll taxes
- Benefits per year (health, retirement)
- Other annual costs (training, equipment)
- Revenue generated per year
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter the pay rate, hours per week, paid days off, payroll tax rate, benefits and other costs, and your revenue.
Tips
- Use figures for the same period (a month, a quarter or a year) for every input so ratios compare like with like.
- Track the metric over time – the trend usually tells you more than a single value.
- Compare your result with industry benchmarks, which vary a lot between sectors.
- Treat the result as a starting point for a decision, then check the assumptions behind each input.
Common mistakes to avoid
- Mixing monthly and yearly numbers in the same calculation.
- Using revenue where the formula needs profit (or the other way round).
- Forgetting hidden costs such as taxes, fees, overheads or your own time.
Inputs explained
| Field | What to enter |
|---|---|
| Hourly pay rate | Amount in your currency |
| Paid hours per week | A number |
| Paid weeks per year | A number |
| Paid days not worked (holidays, vacation, sick) | A number |
| Employer payroll taxes | In % |
| Benefits per year (health, retirement) | Amount in your currency |
| Other annual costs (training, equipment) | Amount in your currency |
| Revenue generated per year | Amount in your currency |
What each result means
- Gross pay per year = [Hourly pay rate]×[Paid hours per week]×[Paid weeks per year]
- Hours paid but not worked = [Paid days not worked (holidays, vacation, sick)]×[Paid hours per week]÷5
- Net hours worked per year = [Paid hours per week]×[Paid weeks per year] – [Hours paid but not worked]
- Annual labor cost = [Gross pay per year]×(1 + [Employer payroll taxes]÷100) + [Benefits per year (health, retirement)] + [Other annual costs (training, equipment)]
- True cost per hour worked = [Annual labor cost]÷[Net hours worked per year]
- Labor burden over gross pay = ([Annual labor cost]÷[Gross pay per year] – 1)×100
- Labor cost as a share of revenue = [Annual labor cost]÷[Revenue generated per year]×100
Example values
How the main result changes when Hourly pay rate changes and everything else stays at the example values above:
| Hourly pay rate | Annual labor cost |
|---|---|
| 12.5 | 38,710 |
| 18.75 | 52,815 |
| 25 | 66,920 |
| 31.25 | 81,025 |
| 37.5 | 95,130 |
| 50 | 123,340 |
Formula
Gross pay = hourly rate × paid hours per yearAnnual labor cost = gross pay × (1 + payroll taxes) + benefits + other costsHours actually worked = paid hours − (holidays + vacation + sick days) × hours per dayTrue hourly cost = annual labor cost ÷ hours workedWorked example
Inputs — Hourly pay rate: $25; Paid hours per week: 40; Paid weeks per year: 52; Paid days not worked (holidays, vacation, sick): 20; Employer payroll taxes: 8.5 %; Benefits per year (health, retirement): $9,000; Other annual costs (training, equipment): $1,500; Revenue generated per year: $250,000.
Results — Gross pay per year = $52,000.00; Hours paid but not worked = 160; Net hours worked per year = 1,920; Annual labor cost = $66,920.00; True cost per hour worked = $34.85; Labor burden over gross pay = 28.69 %; Labor cost as a share of revenue = 26.77 %.
Frequently asked questions
How much does an employee really cost?
Typically 1.25–1.4 times their gross salary once taxes and benefits are added.
What is a labor burden?
The extra cost on top of wages: payroll taxes, insurance and benefits.
What is a good labor cost percentage?
Restaurants aim for 25–35% of revenue; service firms are often higher.
What formula does the Labor Cost Calculator use?
Gross pay = hourly rate × paid hours per year.