How this calculator works
The paycheque is only part of what an employee costs. Start with paid hours and the hourly wage, subtract paid days that are not worked to get hours actually worked, then add employer payroll taxes, insurance, benefits, overtime, supplies and any other annual spending. Dividing the total by hours actually worked gives the real cost of an hour of labour, which is higher than the wage. Dividing it by revenue shows how much of each sales dollar goes to labour. Use the second mode when your payroll system already reports a total annual labour cost.
Formula
Gross pay = hourly pay x paid hours per week x paid weeks. Net hours = paid hours - (paid days not worked x hours per paid day). Annual labour cost = gross pay + payroll taxes + insurance + benefits + overtime + supplies + other costs. Cost per hour worked = annual labour cost / net hours. Labour share of revenue = annual labour cost / revenue.
Worked example
An employee is paid for 40 hours a week for 52 weeks at $20 an hour, with 10 paid days not worked of 8 hours each. Gross pay is $41,600 and net hours are 2,080 - 80 = 2,000. Payroll taxes of 10% add $4,160, and insurance of $1,500, benefits of $6,000, overtime of $2,000 and supplies of $800 bring the annual cost to $56,060. That is $28.03 per hour worked and 11.21% of $500,000 in revenue.
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Frequently asked questions
Should payroll taxes be a percentage or a dollar amount?
The calculator applies the percentage to gross pay. If you already have the employer contribution amounts, add them together and enter the total in one of the annual cost fields instead, setting the tax rate to zero.
Why divide by hours worked rather than hours paid?
Hours paid include vacation, statutory holidays and sick days, so they overstate the time spent producing output. Hours actually worked give a truer cost per productive hour and make overtime and absence visible.
Which costs belong in the total?
Include every cost the employer bears because the person is on payroll: wage, employer contributions, insurance, benefits, overtime, uniforms, tools and supplies. Exclude costs that would be incurred without the employee, such as rent for the building.