You found the perfect project manager. She wants $80,000. You run the math: that's $6,667 a month, fits the budget. You make the offer.
Three months later, you're staring at your P&L wondering why labor costs are $25,000 higher than you projected. The answer isn't overtime or a surprise raise. It's the payroll costs you never budgeted in the first place.
The 20-35% rule nobody tells you
A salary is not what an employee costs. It's what an employee takes home. The gap between those two numbers catches founders every single time.
For most businesses I work with—construction, manufacturing, energy services—the true cost of a W-2 employee runs 20-35% above their base salary. That $80,000 project manager? She's really a $96,000 to $108,000 line item.
Here are the five costs that create that gap.
1. FICA taxes (the one you probably remembered)
Social Security tax is 6.2% of wages up to $176,100 in 2025. Medicare is 1.45% with no cap. That's 7.65% right off the top that you owe as the employer—separate from what you withhold from the employee's check.
On an $80,000 salary: $6,120.
Most founders know this one exists. Few budget it accurately.
2. FUTA and SUTA (the ones you forgot)
Federal Unemployment Tax (FUTA) is 6% on the first $7,000 of wages per employee. After the standard credit, you're paying 0.6%—so $42 per employee per year. Small number, easy to miss when you're adding five people.
State Unemployment Tax (SUTA) is where it gets expensive. In Texas, new employers pay around 2.7% on the first $9,000 of wages. That's $243 per employee. Your rate changes based on your claims history—if you've had layoffs, it can climb to 6% or higher.
On an $80,000 salary: $285 minimum, potentially $582 or more.
3. Workers' compensation insurance
This is the big variable. If you're running a professional services firm, you might pay $0.50 per $100 of payroll. If you're in construction or manufacturing, you could be paying $5-15 per $100 of payroll depending on the classification.
For a field employee at $80,000 in a moderate-risk classification (say, $8 per $100): $6,400.
I've seen founders miss this entirely because their first few hires were office staff. Then they add a crew and wonder why their insurance bill tripled.
4. Benefits you committed to
Health insurance averages $8,951 per year for single coverage (employer portion) according to KFF's 2024 survey. Family coverage? $17,393 employer share.
Add 401(k) matching (3-4% of salary is common), PTO accrual, and any other benefits you've promised. These aren't optional once you've offered them.
Conservative estimate for single coverage plus 3% match on $80,000: $11,351.
5. The costs you don't see on a tax form
Payroll processing fees, whether you're using Gusto, ADP, or your accountant. Training time. Equipment and software licenses. The productivity gap while they ramp up.
These vary too much to give you a number, but budget at least $1,000-2,000 per hire for the administrative friction alone.
What the real math looks like
Let's total it up for that $80,000 project manager:
- Base salary: $80,000
- FICA (7.65%): $6,120
- FUTA/SUTA: $285
- Workers' comp (office rate, $1.50/$100): $1,200
- Benefits (health + 3% match): $11,351
- Admin/onboarding: $1,500
Total: $100,456—a 25.6% markup.
Put her in a field role with higher workers' comp exposure, and you're over $104,000.
Where to start
Before your next hire, build a simple burden rate calculator. Take every cost above, estimate it for your specific situation, and divide by base salary. That percentage is your multiplier.
If your burden rate is 28%, every dollar of salary you budget should actually be $1.28. Apply that to your entire headcount plan and you'll stop being surprised by Q2.
If you're not sure where your numbers actually land—especially on workers' comp classifications or unemployment rates—that's exactly the kind of thing a fractional CFO can sort out in an afternoon. At Laverton Advisory, we build these models for clients so they can hire with confidence instead of crossed fingers.
Derek Hammock is a CPA and fractional CFO at Laverton Advisory. He works with founder-led businesses to build the financial clarity they need to make better decisions.