Fully Loaded Employee Cost Calculation

What Is Fully Loaded Employee Cost?

Fully loaded employee cost is the total expense a company incurs to employ one person for a year. It goes well beyond base salary to include benefits, taxes, equipment, facilities, and any other overhead that can be reasonably attributed to that employee. Understanding this number is foundational to accurate budgeting, pricing decisions, and headcount planning.

Finance professionals who can quickly calculate and communicate fully loaded costs are better positioned to advise on hiring decisions, evaluate contractor-versus-employee trade-offs, and build reliable financial models. Yet many organizations still undercount these costs, leading to budget overruns and misaligned expectations between Finance and department heads.

The Full Cost Stack

Tier 1: Cash Compensation

Cash compensation includes every dollar that flows directly to the employee.

• Base salary. The fixed annual pay. Use the actual salary for current employees or the band midpoint for planned hires.
• Bonus. Annual performance bonuses, signing bonuses (amortized if appropriate), and spot bonuses. For target bonus plans, use the target payout percentage.
• Commissions. For sales roles, model at-plan earnings unless you have reason to assume over- or underperformance.
• Overtime. For non-exempt employees, estimate based on historical overtime patterns.

Tier 2: Equity Compensation

Stock-based compensation is a real economic cost, even though it does not consume cash in the period it is expensed. For financial modeling purposes, include the grant-date fair value of equity awards, amortized over the vesting period. Common equity vehicles include restricted stock units (RSUs), stock options, and employee stock purchase plan (ESPP) discounts.

In a pre-IPO company, equity valuation can be complex. Use the most recent 409A valuation or the price from the latest funding round as a reference point. For public companies, use the grant-date stock price.

Tier 3: Benefits

Benefits are the largest non-compensation cost component for most employers.

The employer share of medical insurance is typically the single largest benefit line item. Costs vary widely by geography, plan design, and whether the employee elects single or family coverage.

Tier 4: Payroll Taxes

Employer payroll taxes are a mandatory cost that scales with compensation.

• FICA (Social Security and Medicare). The employer pays 7.65% on wages up to the Social Security wage base ($168,600 in 2025), and 1.45% on wages above that threshold.
• Federal Unemployment Tax (FUTA). 6% on the first $7,000 of wages, effectively 0.6% after the standard credit.
• State Unemployment Tax (SUTA). Rates vary by state and employer experience rating, typically 1% to 5% on a wage base of $10,000 to $50,000.
• Workers’ compensation. Rates depend on industry and job classification, ranging from 0.5% to over 5% of payroll for high-risk roles.

Tier 5: Equipment and Technology

Every employee needs tools to do their work. Standard costs include:

• Hardware. Laptop, monitor, peripherals, and mobile phone. Budget $2,000 to $5,000 for initial setup, amortized over 3 years.
• Software licenses. SaaS tools per seat can range from $2,000 to $10,000 per year depending on the role. Engineering roles with specialized tooling tend to be at the higher end.
• IT support overhead. Allocate a share of IT department costs per employee, typically $1,000 to $3,000 per year.

Tier 6: Facilities

For office-based employees, real estate is a significant cost. Commercial office space in major US metros runs $8,000 to $15,000 per person per year when you include rent, utilities, maintenance, and office supplies. For remote employees, this drops to near zero, though some companies provide a home office stipend of $500 to $2,000.

Tier 7: Indirect Overhead

Some organizations allocate a share of corporate overhead to each employee. This can include Finance, HR, Legal, and administrative functions. While this allocation is more relevant for internal cost accounting and transfer pricing than for headcount budgeting, it is important to understand when comparing internal costs to outsourcing alternatives.

Putting It All Together: A Worked Example

Consider a mid-level software engineer in a SaaS company based in a major metropolitan area.

In this example, the fully loaded cost is 56% above the base salary. The multiplier will vary by role, location, and company, but a range of 1.35x to 1.60x base salary is typical for US-based knowledge workers.

How to Use Fully Loaded Costs in Practice

Budgeting and Forecasting

When building your annual headcount budget, always use fully loaded costs. Base salary alone will understate the budget by a wide margin and create a gap that surfaces as a negative variance mid-year.

Contractor vs. Employee Decisions

Comparing a contractor’s hourly rate to an employee’s salary is an apples-to-oranges comparison. Convert the employee cost to a fully loaded hourly rate (divide annual fully loaded cost by productive hours, typically 1,800 to 1,900) to make the comparison fair.

Pricing and Margin Analysis

If your business delivers professional services, the fully loaded cost per employee is a critical input to your pricing model. Underestimating this cost leads to underpriced engagements and eroding margins.

Headcount Trade-Off Discussions

When leadership asks whether to hire one senior person or two junior people, the fully loaded cost comparison makes the economic trade-off concrete. Factor in not just cost but also ramp time, management overhead, and expected output differences.

Maintaining Accuracy Over Time

Fully loaded cost assumptions should be reviewed at least annually, ideally during the planning cycle. Benefits costs tend to increase 5 to 8 percent per year. Payroll tax wage bases adjust annually. Real estate costs fluctuate with lease renewals and market conditions. Build a standard cost card for each role family and update it each cycle so your models stay grounded in reality.