How much does an employer pay for a W2 Full Time Employee?


I’ve heard varying numbers and percentages thrown around — “anywhere between 20%-30% on top of the base salary” is something I’ve heard often. So, I decided to do some research to figure out how much (more) an employer pays for a W2 Full Time Employee (FTE).

First, I’m not a tax professional or an accountant. Please do not take any of this as “official”. This is simply research I’d done that I’ve chosen to share.

As I started researching, I realized that there are a few variables that contribute to the percentage:

  • the number of employees the organization has,
  • the base salary of the employee,
  • the kind of work that the employees are engaged in (are your employees staying put in front of a computer, or are they repairing roofs?),
  • the company’s vacation policy as well as the state’s paid sick leave policy, and,
  • the extent to which the employer is willing to cover health insurance and benefits like 401K.

Assumptions

For the sake of this research, I decided to make the following assumptions:

  1. the business is in California, is conducting business in California, and it’s employees work in California,
  2. this is a tax non-exempt business,
  3. the business is engaged in a relatively “low risk” business for workers compensation insurance purposes[1],
  4. the employee gets 3 days of paid sick leave[2],
  5. this business covers $5500 per W2 FTE per year on health insurance (also assuming here that no coverage is offered to dependents)[3], and,
  6. benefits like 401K are not covered by this business.

Findings

One of the biggest non-linear contributors to the additional percentage was health insurance (again, based on my assumption above). So, the higher the wage of the employee, the lower the additional percentage.

If your company employs more than 25 FTEs, and

  • if your employee makes $25,000 per year[4], you are likely to pay an additional $8,911 in taxes, health insurance and mandated sick leave (which is 35.64% of $25,000)
  • if your employee makes $150,000 per year, you are likely to pay an additional $25,966 in taxes, health insurance and mandated sick leave (which is 17.31%).

If your company employs less than 25 FTEs, and if the average FTE income is less than $50K and you have purchased coverage through SHOP[5], and

  • if your employee makes $25,000 per year[4], you are likely to pay an additional $8,911 in taxes, health insurance and mandated sick leave (which is 24.64% of $25,000)
  • if your employee makes $150,000 per year, you are likely to pay an additional $25,966 in taxes, health insurance and mandated sick leave (which is 15.48%).

If you exclude health insurance, which you can only do if you employ less than 50 FTEs[6], you pay an additional 13.50% flat.

Here’s a rudimentary worksheet I created that shows how I arrived at these numbers: https://docs.google.com/spreadsheets/d/1FvLYdl3SeRs9hccsidPSu7UwJ8kTIDOkNB6XV4o5YB8/edit#gid=1150346394


Conclusion

The “20%-30%” that gets floated around is more-or-less accurate. Assuming these claims were being made for employees who make between $25K-$50K per year, that percentage is definitely in the ballpark.


[1] Worker’s Comp: http://www.allbusiness.com/how-much-does-workers-compensation-insurance-cost-824-1.html

[2] California’s Paid Sick Leave Policy : http://www.dir.ca.gov/dlse/Paid_Sick_Leave.htm

[3] Health Insurance Costs and Coverage: http://kff.org/report-section/ehbs-2014-summary-of-findings/

[4] Minimum wage in San Francisco is $12.25/hr, but I rounded this down to $12/hr for this research http://sfgsa.org/index.aspx?page=411

[5] Small Business Healthy Care Tax Credits — https://www.healthcare.gov/small-businesses/provide-shop-coverage/small-business-tax-credits/

[6] Affordable Care Act — SBA https://www.sba.gov/content/employers-50-or-more-employees


Special thanks to Greg Dean