Why does the first hire so often lose money?

Because the wage is the only number anybody quotes. You agree $25 an hour with somebody in a parking lot, you both shake on it, and neither of you is thinking about the state unemployment rate notice or the class code on the comp policy. Then the quarterly bills land and the arithmetic turns out to have been $68,000, not $52,000.

Three things do the damage, and they multiply rather than add.

Burden. Employer FICA, FUTA, SUTA, workers comp, whatever you put toward health, plus boots, phone, PPE and training. On the defaults on this page that is $16,076.50 on top of $52,000 of wages, a 30.9% burden. With no health contribution at all it drops to 20.5%. In roofing, where comp runs $15 to $30 per $100 of payroll, it can pass 45% on payroll taxes and insurance alone.

Paid time off. A week of vacation, six holidays and a couple of sick days is 104 hours. You pay for 2,080 and you get 1,976. That alone moves the true cost from $32.73 an hour to $34.45.

Utilization. This is the one that hurts. Not every worked hour gets invoiced. Driving between jobs, loading the truck, going back for a part, a warranty call, standing around waiting on an inspector, the twenty minutes at the start of the day. At 75% those 1,976 hours become 1,482 billable ones, and the whole $68,076.50 has to come back out of them. That is $45.94 an hour before you make a dollar.

An owner who prices a helper's time at $35 an hour because "he's on twenty-five and I'm adding a bit" is losing about $11 on every hour that helper is on a job. Nobody sees it, because the invoices go out and the money comes in. It shows up as the business somehow not having any more cash than it did before it had an employee, which is the single most common thing owners say after their first hire.

A firm tracking about 2,200 service businesses found labor estimating runs 12% over on average, and their conclusion was blunt: if hours are not tied daily to the job, your job costing is fake. Burden is only half the problem. The other half is not knowing where the hours went.

What do the paid tools charge to work this out?

Labor burden costing is a feature you buy, not a feature you get. Here is what it sits inside as of August 2026, from the vendors' own pricing pages.

Prices from vendor pricing pages and published contractor quotes, compiled August 2026. QuickBooks Online raised Essentials from $60 to $85, Plus from $99 to $140 and Advanced from $200 to $340 on 1 August 2026. QuickBooks Time raised per-user pricing by $2 on 1 July 2026. Prices in this category move every summer.

Worth saying plainly: if you are running payroll for more than two or three people you should be paying for payroll software, and QuickBooks Payroll at $50 a month plus $6.50 a head is cheap against one late 941. What you should not do is pay $340 a month to find out that your $25 an hour helper costs $45.94 a billable hour. That is arithmetic, and arithmetic is free.

Where is this free calculator enough, and where is it not?

It is enough for the decision it is built for: should I hire, at what wage, and what do I have to charge for their time. If you have one to five people, you price your own work, and you want a defensible bill-out rate rather than a guess, this page gets you there in five minutes and the number will hold up in front of an accountant.

It is enough for the hire-or-sub question too, because that question is genuinely about two numbers: fixed annual cost against hours you can fill.

It is not enough for four things, and you should not try to make it be.

• Running payroll. This page does not withhold, file, deposit or produce a W-2. Use a payroll provider. Getting a 941 wrong is expensive in a way that being 10% off on a bill-out rate is not.
• Overtime and multi-state crews. Overtime at time-and-a-half changes both the wage and the burden. Crews working across state lines pick up multiple SUTA registrations. Both need real payroll software.
• Prevailing wage and certified payroll. Davis-Bacon and state prevailing-wage jobs have their own fringe-benefit rules and reporting. Nothing here touches them.
• Knowing your real utilization. This page asks you for it. If you are guessing, the answer is a guess. The free time clock will tell you what it actually is, with job codes, and it exports a CSV.

How do you use this calculator?

1. Enter the wage and paid schedule. Gross hourly pay, paid hours a week, paid weeks a year. Use 52 weeks if they are on payroll all year, and put the time off in Step 2 instead of shortening the year here.
2. Pick a workers comp preset, then overwrite it. The presets get you in the right neighbourhood. The real number is on your policy, quoted per $100 of payroll, and it is specific to a class code.
3. Set SUTA rate and wage base from your state notice. Both numbers are on the annual rate notice your state unemployment agency sends you. Neither is federal and neither is the same as last year's, usually.
4. Add benefits and other costs. Your monthly share of health or a retirement match, plus the yearly total for training, PPE, phone and small tools. FICA and FUTA are added for you.
5. Enter paid time off honestly. Vacation, holidays and sick hours. Zero is a valid answer, and it makes the per-worked-hour cost equal to the per-paid-hour cost.
6. Move the utilization slider to reality, not hope. Then set the margin you want. The bill-out rate at the bottom is the floor for an hour of their time.
7. Check Step 3 before you commit. If you cannot honestly say how many billable hours a year you can feed a new person, that is the answer, and it is a sub.

How much do employer payroll taxes add in 2026?

The tax side is the only part of labor burden that is close to fixed. Here it is on $52,000 of wages, which is a $25 an hour employee at 2,080 paid hours.

Four things about that table are worth knowing, because they are where people get caught.

Social Security stops, Medicare does not. The 6.2% only applies up to the annual Social Security wage base, which is re-set every year and published by the Social Security Administration. Trade wages are usually well under it, which is why this calculator applies the full 7.65% straight across. If you are paying somebody into six figures, check the current base before you rely on the number.

The 0.9% Additional Medicare tax is not yours. It applies to high earners and comes out of the employee's side only. There is no employer match on it. It does not belong in labor burden.

FUTA's headline rate is 6%, not 0.6%. You get a 5.4% credit for paying your state unemployment tax on time, which is what brings it down to 0.6%. States that have outstanding federal loans get a credit reduction, which pushes the effective FUTA rate up in 0.3% steps. If your state is in credit reduction, your real FUTA is higher than the number on this page, and it lands as a lump on your Form 940 in January.

FUTA and SUTA are per employee, not per payroll. Both stop once that person's year-to-date wages pass the base, which is why a full-time employee's unemployment tax is basically all paid by spring, and why hiring six seasonal people costs far more unemployment tax than keeping one person all year.

What is my SUTA rate and wage base?

Neither number is federal, and neither is guessable. Both arrive on the annual rate notice your state unemployment agency sends you, usually in late autumn for the year ahead.

The rate is assigned to you. New employers get a starting rate set by the state, often somewhere in the 2% to 3% range depending on the state and industry, and it moves after a few years based on your own claims history. Lay people off and it goes up. Never have a claim and it drifts down toward the state minimum. Construction frequently gets a higher new-employer rate than other industries because the industry's claims experience is worse.

The wage base varies more than most people expect. Several states still sit at the $7,000 federal floor. Others run into the tens of thousands, and Washington's has climbed past $60,000. Most states reset the base every January, and a few index it to average wages so it moves every single year. A $9,500 base at 2.7% is $256.50 per employee per year. A $60,000 base at the same rate is $1,620. Same wage, same rate, six times the tax, entirely because of where the truck is parked.

Two more state-level items that this calculator does not add and your state may: mandatory disability insurance, and paid family and medical leave contributions. A handful of states levy one or both on employers. If your state does, the percentage goes in the "other costs" box, converted to an annual dollar figure.

Why is workers comp the biggest swing in labor burden?

Workers comp is quoted per $100 of payroll against a class code that describes what the person actually does, and it is the single most variable line in labor burden.

A roofer and a bookkeeper on the same $52,000 wage differ by $12,844 a year in comp alone. That is not a rounding error, it is most of a second employee, and it is why a roofing crew's bill-out rate has to be so much higher than a handyman's for the same wage.

Three things move your own number off the table above. Your experience modification rate, which starts at 1.00 and multiplies your premium up or down based on your own claims. Your state, because comp is regulated state by state and the same class code can differ by a factor of two or three across state lines. And how honestly you classify people: putting a roofer on a clerical code is fraud, and the audit that finds it comes with a bill for the difference plus penalties.

Workers comp figures are typical 2026 published rates per $100 of payroll and vary by state, class code and experience modification. Labor burden benchmarks: a 30% to 60% total burden is the common range, and constructioncoverage.com's analysis puts the construction average near 44% with all private industry around 46%. Verify against your own policy, your state rate notice and your accountant. Estimates for planning, not tax or legal advice.

Should I hire someone or use a subcontractor?

The comparison people usually make is wage against sub rate: $25 an hour against $65 an hour, so the employee is obviously cheaper. That comparison is wrong twice over. The employee does not cost $25, and the sub only costs you for hours worked.

Compare a fixed annual number against a variable one. The employee on this page's defaults costs $68,076.50 whether the phone rings or not. A $65 an hour sub costs $65 × however many hours you actually give them, and nothing in the weeks you do not.

Divide one by the other and you get the crossover: $68,076.50 ÷ $65 = 1,047 billable hours a year. That is the number worth writing down. Above 1,047 billable hours the employee is cheaper, and the gap opens fast — at 1,482 billable hours the sub would cost $96,330, so hiring saves $28,253.50. Below 1,047, the sub wins, and every hour below it the sub wins by more.

Which means the real question is not "is an employee cheaper." It is "can I honestly promise this person 1,047 billable hours." If your work is seasonal, if your pipeline is three weeks deep, or if you have never counted your billable hours, you already have your answer.

The things that do not show up in that arithmetic still matter. A sub carries their own insurance and their own comp, which is why their rate is what it is, and you must collect a certificate of insurance and a W-9 before they set foot on a job. A sub can also take a better offer in the middle of your busy week. An employee turns up in February when there is nothing on, gets better at your way of doing things, and can be trained.

And the classification line is legal, not preferential. If you set their hours, tell them how to do the work, and supply the tools and the truck, most states will treat that person as an employee regardless of what either of you signed. Getting it wrong means back payroll taxes, penalties, interest, and an uninsured-injury problem that can end a small shop. If the relationship looks like employment, price it as employment.

Common questions