How to Calculate Employee Pay: The True Cost of Your First Hire

The moment you hire your first employee, your payroll responsibility starts. And it's bigger than the number in the offer. 

What does it really cost to hire an employee? The answer: More than their wage. But it’s not a mystery.

Every payday triggers a set of employer-paid costs that don't show up on your employee's pay stub. They show up in your budget. Understanding how that works is part of growing your business with confidence. 

One of the most common things first-time employers get wrong isn't the math. It's not knowing what math they need to do. This guide covers both sides of the paycheck: What your new employee takes home, and what you spend.

Start With Gross Pay

Gross pay is the total amount your employee earns before taxes or deductions. It's the starting number. All payroll calculations, including your employer-paid taxes, start with it.

Hourly employees

Multiply the hourly rate by the number of hours worked in the pay period. 

Under the federal Fair Labor Standards Act (FLSA), covered nonexempt employees generally must be paid overtime for hours worked over 40 in a workweek at no less than 1.5× their regular pay rate. Some states have additional rules (including daily overtime), so it’s smart to check your state’s requirements.

Use the SurePayroll By Paychex  hourly paycheck calculator to estimate gross and net pay for your hourly hire.

Salaried employees

Divide the annual salary by the number of pay periods in the year. Common pay frequencies:

• Weekly: 52 pay periods

• Bi-weekly: 26 pay periods

• Semi-monthly: 24 pay periods

• Monthly: 12 pay periods

Use the SurePayroll salary paycheck calculator for a quick estimate.

Gross pay is the number you agreed to. It’s often where most first-time employers start. The next step is to understand the employer costs behind every paycheck, so you can determine how they fit into your budget.  

SurePayroll calculates federal, state, and local payroll taxes automatically on each run — the same math that can easily trip up first-time employers is handled in the background.

What You Owe Beyond the Wage: Employer-Paid Taxes

It’s not just your employee’s wage. On top of every dollar of gross pay you issue, you owe the employer paid taxes. Those costs don’t appear on an employee’s pay stub. They are your responsibility as the employer.

According to the Bureau of Labor Statistics (September 2025), private industry employers paid an average of $32.37 per hour in wages, plus another $13.68 per hour in employee benefits. A portion of that additional cost comes from required payroll taxes, including the employer share of Social Security and Medicare.

Under federal rules, employers pay 7.65% of gross wages in FICA taxes, before federal and state unemployment taxes are factored in.

For example: If you pay someone $20 an hour, your required employer FICA cost is about $1.53 per hour, which is in addition to the $20 an hour wage.

Employer FICA: Your required match

FICA taxes (Federal Insurance Contributions Act) cover Social Security and Medicare. As the employer, you match your employee's contribution dollar for dollar:

• Social Security tax: 6.2% of gross wages up to the annual wage base limit 

• Medicare tax: 1.45% of all gross wages (no cap)

• Total employer FICA: 7.65%

This is paid in addition to the wage. Your match does not come out of your employee's paycheck. It comes out of your operating budget.

FUTA: Federal Unemployment Tax

The Federal Unemployment Tax Act (FUTA) funds unemployment benefits at the federal level. The tax rate is 0.6% on the first $7,000 of each employee's wage per year, up to a maximum of $42 per employee annually. 

This is a predictable number you can budget for before your first hire starts.

SUTA: State Unemployment Tax

State unemployment tax (SUTA) rates (also called state unemployment insurance or SUI) vary by state and by employer history. New employers are typically assigned a standard rate until they build a claims history with their state. 

For a full breakdown of which taxes fall on your side of the ledger, see which payroll taxes are paid by employers. 

For broader context on small business tax obligations, see how much do small businesses pay in taxes.   

What You Withhold From Your Employee's Paycheck

Employer taxes are one side of the equation. The other is withholding. These are the taxes you collect from your employees’ gross pay on behalf of the government. You don't pay these; your employee does. But you're legally responsible for calculating the right amount, withholding it from every paycheck, and depositing it on the IRS's schedule.

Employee FICA

Your employee pays the same FICA tax rates you do: 6.2% for Social Security and 1.45% for Medicare. You deduct this from their gross pay each period and pay it alongside your employer match.

Federal income tax

The amount you withhold depends on your employee's filing status, pay frequency, and withholding elections — all captured on their W-4 form, Employee’s Withholding Certificate

There's no single rate; it varies by employee. A missing or incomplete Form W-4 means withholding at the default rate, which may not reflect what your employee owes. 

Make sure your employee completes, signs, and submits Form W-4 before you run payroll. 

State and local income tax

Most states require income tax withholding; a few don't. Rates and rules vary. Take time to confirm your state's requirements before your first payroll run. Some jurisdictions have local taxes that you may need to withhold.

One more note: if your employee contributes to healthcare insurance premiums or a retirement plan, those deductions may reduce their taxable wages. That detail becomes more important as your team grows. For this first hire, your priority is most likely federal and state withholdings.

What Does It Cost to Hire an Employee? A Side-by-Side Example

The clearest way to see your true payroll cost is by looking at both sides of the same paycheck: What your employee takes home (net pay), and what you need to budget beyond the wage. Most first-time employers only plan for the wage. 

Here's what they're actually spending.

The Small Business Administration estimates the true cost of a hire typically runs 1.25 to 1.4 times the base wage once employer taxes and benefits are included. Required employer taxes account for more of that gap than most first-time employers expect.

Bi-weekly gross pay: $900.00 for Maya, a part-time salon assistant, $18/hours, 25 hours/week in Illinois. 

^{Note: Maya's federal income tax is an estimate. The exact amount depends on her W-4 elections. FUTA applies only until her wages reach $7,000 for the year, roughly for the first eight pay periods, capped at $42 annually. The 1.11 multiplier reflects required employer taxes only. Add health insurance or retirement contributions and you'll move close to the SBA's 1.25–1.4x range, which is why it’s worth knowing that benchmark now.}

You can use the free SurePayroll payroll tax calculator to estimate your own numbers. 

The hourly paycheck estimator can also give you a quick starting point. 

The calculators are a starting point and don't replace running actual payroll, withholding taxes, and depositing them on schedule.

“I really love how the SurePayroll really made sure I was comfortable making my first paycheck go through smoothly. Being the first-time owner of a business, I had many questions. They are very good at talking through questions.”  Alena, Trustpilot review

The Calculation Doesn’t End with the Paycheck, Tax Deposits and Filings Matter Too

Calculating and withholding the right amounts is step one. Depositing them to the IRS on the correct schedule is step two. 

Missing that step can add fines, penalties, and interest. The IRS failure-to-deposit (FTD) penalty starts at 2% of the unpaid amount for deposits just 1–5 days late.

IRS deposit schedule

New employers generally begin on a monthly payroll tax deposit schedule, with one deposit due by the 15th of the following month. As payroll tax liability increases based on IRS lookback rules, employers may be required to move to a semiweekly deposit schedule.

You track FUTA throughout the year. Depending on how much you owe, you’ll deposit this annually (if you owe less than $500/year) or quarterly (if you owe more than $500/year). 

SurePayroll is set up to handle federal and state income tax deposits automatically.

Quarterly filings — Form 941

Every quarter, you file Form 941 to report wages paid, taxes withheld, and employer FICA contributions. It's due the last day of the month following each quarter. 

As part of its payroll service, SurePayroll automatically prepares and files Form 941.

Annual filing — Form 940

Form 940 reports your FUTA liability for the full year and is due January 31. SurePayroll prepares and files Form 940 as part of its payroll service

One more first-hire obligation: Most states require you to report each new hire to the state within a set window of their start date. When you add an employee, new hire reporting to the state is included in the SurePayroll service.  

Learn how to register as employer with your state here.  

If you're ready to move from calculation to execution, how to do payroll for one employee can help. 

If you’re looking for an overview of the broader payroll process, how to do payroll for small business has you covered. 

And when you're ready to explore how SurePayroll can help you run payroll and manage payroll taxes, start here to see pricing and set up your account. 

Your First Payroll Run: How First-Time Employers Get it Right

Small business owners who get payroll right from day one aren't tax experts. They're the ones who understand what's involved — and set up a system before the first paycheck goes out.

You now have the complete picture: gross pay, employer-paid taxes, employee withholdings, deposit schedule, and quarterly filings. 

That's the full calculation. It is the same automated payroll tax calculations, withholdings and deposits SurePayroll runs for its customers every pay period.

The SurePayroll Auto Payroll feature also lets small business owners set a schedule to pay employees, get a reminder, and approve with one click. Direct deposit gets employees paid faster and more reliably than paper checks. The employee self-service portal gives your first hire access to their pay stubs and tax documents — a professional touch, even with a team of one.

Explore SurePayroll for a payroll solution that’s built for your small business. 

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