Labor cost formula
- True annual cost of this employee
- $75,775
- Social Security, employer share (6.2%)
- $3,720
- Medicare, employer share (1.45%)
- $870
Every figure on this page is computed from the inputs you enter, by the method stated below it. The only constants HeadcountDesk supplies are the published federal payroll tax rates and the overtime multiplier, each cited where it is used. The defaults are a worked example to replace with your own.
The labor cost formula is one line with a divisor people forget: labor cost per hour equals gross wage plus employer payroll taxes plus workers' compensation plus benefits and paid time, divided by hours actually worked. Hours actually worked means paid hours minus holidays, PTO and training, and using paid hours instead is the standard mistake that understates the figure. The true cost of employee calculator on this site runs the formula from your inputs, free and without an account; HeadcountDesk Pro keeps the result against each employee.
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The numerator
Gross wage for the year, plus the employer's share of Social Security and Medicare, FUTA after the credit and state unemployment, plus workers' compensation at the class rate, plus health, retirement and paid-leave costs at your real figures. The IRS gives the employer's share of Social Security as 6.2% of wages up to the $184,500 base for 2026 and Medicare as 1.45% with no limit, and FUTA as 6.0% on the first $7,000 of each employee's wages, reduced to 0.6% with the full 5.4% credit.
The divisor
Hours actually worked: the scheduled hours minus holidays, PTO, sick days and training. A 2,080-hour year rarely survives that subtraction, and the shrinking divisor is what pushes the hourly figure up.
Worked properly, per person
The formula runs per employee, because the benefits and the hours differ; an average across the team hides the expensive hire and the part-timer alike. The free true cost of employee calculator on this site runs it per person.
Against the benchmark
The Bureau of Labor Statistics' March 2026 employer cost release puts total compensation for private industry workers at $46.60 per hour worked, of which wages and salaries are $32.60 and benefits $14.01. Your formula's output belongs beside that split, and Pro keeps it with each employee's record. From the vendors' own pricing pages: Homebase lists Essentials at $24 per location per month billed annually or $30 monthly, with a free Basic plan for one location of up to ten employees; BambooHR lists Core at $10 and Pro at $17 per employee per month; Deputy lists Core at $6.50 per user per month. HeadcountDesk Pro is $24 a month per location.
Labor cost formula: common questions
What is the labor cost formula?
Wage plus employer taxes plus workers' compensation plus benefits, divided by hours actually worked.
What counts as hours actually worked?
Paid hours minus holidays, PTO, sick time and training: the hours that produce work.
Is the calculator free?
Yes, with no account. Pro keeps the figure against each employee.
Will it do what you need for Labor cost formula?
Tell us what your business needs and we will tell you straight whether HeadcountDesk Pro does it today, whether it is coming, or whether you are better off with something else. A person reads these and replies.