The cost line by line, per year and per productive hour, with why one multiplier misstates junior and senior roles and how to budget a mid-year hire.
The fully loaded cost of an employee is base salary plus every cost that exists only because the person is employed: bonus, employer payroll taxes, benefits, retirement contributions, equipment, recruiting, training and a share of space. On an 80,000 salary those add 46,073, so the fully loaded cost is 126,073, a multiplier of 1.58 times salary. Per productive hour it is 68.52, against the 38.46 that salary divided by 2,080 hours suggests.
Worked in full in Financial Planning and Analysis by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
A headcount budget built on salary times a rule-of-thumb multiplier is usually wrong in two directions at once: too low for junior roles, where fixed per-head costs weigh more, and wrong in timing for new hires, whose first-year cost has a different shape from their run-rate.
| Input | Value |
|---|---|
| Base salary | 80,000 |
| Target bonus, % of salary | 10% |
| Employer payroll taxes, % of salary and bonus | 8% |
| Health and other benefits, per head | 12,000 |
| Retirement match, % of salary | 4% |
| Equipment and software, per year | 3,000 |
| Recruiting fee, % of salary, spread over expected tenure of 3 years | 20% |
| Training, per year | 1,500 |
| Space and shared overhead, per head | 6,000 |
| Paid hours / days of leave and holidays / training hours | 2,080 / 25 / 40 |
Step 1: cost lines driven by salary. Bonus is 10 per cent of 80,000, 8,000. Payroll taxes apply to salary and bonus: 8 per cent of 88,000 is 7,040. The retirement match is 3,200. The recruiting fee of 16,000 is spread over three years of expected tenure, 5,333 a year.
Step 2: cost lines per head. Benefits 12,000, equipment 3,000, training 1,500 and space 6,000: 22,500 a year whatever the salary.
| Line | Annual cost | % of salary |
|---|---|---|
| Base salary | 80,000 | 100.0% |
| Target bonus | 8,000 | 10.0% |
| Employer payroll taxes | 7,040 | 8.8% |
| Health and other benefits | 12,000 | 15.0% |
| Retirement match | 3,200 | 4.0% |
| Equipment and software | 3,000 | 3.8% |
| Recruiting fee, spread over tenure | 5,333 | 6.7% |
| Training | 1,500 | 1.9% |
| Space and shared overhead | 6,000 | 7.5% |
| Fully loaded cost | 126,073 | 157.6% |
Multiplier = 126,073 / 80,000 = 1.58x
Excel, with rates as named inputs: =Sal*(1+Bonus)*(1+PayTax)+Sal*(Retire+Recruit/Tenure)+Benefits+Equip+Training+Space
Step 3: cost per productive hour. 2,080 paid hours less 200 hours of leave and holidays and 40 of training leave 1,840 productive hours.
Loaded hourly cost = 126,073 / 1,840 = 68.52, against 80,000 / 2,080 = 38.46: a ratio of 1.78x
The hourly figure is the one to use for internal charging, make-or-buy comparisons and pricing time-based work. Comparing a contractor's day rate with salary per hour flatters the employee: the true hourly cost is 78 per cent higher than the salary-only figure.
Two lines deserve a decision rather than a default. The recruiting fee can be expensed in the year of hire, which is what the budget does, or spread over expected tenure, which is what the unit cost does; both are right for their purpose, and the 5,333 a year only stays honest if people really stay three years. Space and shared overhead are partly fixed: one more hire does not add 6,000 of rent until the office is full. For a pricing or make-or-buy decision, include only the overhead the role actually causes; for a full-cost charge between departments, include the full share and say so on the page.
| Base salary | Fully loaded | Multiplier | Per productive hour |
|---|---|---|---|
| 50,000 | 87,233 | 1.74x | 47.41 |
| 80,000 | 126,073 | 1.58x | 68.52 |
| 120,000 | 177,860 | 1.48x | 96.66 |
The 22,500 of per-head costs is a larger share of a small salary, so the multiplier falls as pay rises. A single company-wide multiplier overstates senior roles and understates junior ones; in a plan heavy with junior hires, it understates the total.
The budget year sees nine months of the recurring cost, 120,740 a year excluding recruiting, plus the whole recruiting fee when it is incurred:
In-year cost = 120,740 × 9/12 + 16,000 = 90,555 + 16,000 = 106,555
Salary times nine months gives 60,000. The plan that uses it is 46,555 short for this one role, and next year's run-rate of 120,740 arrives as a surprise. The reverse is also true: a hire that slips by a quarter shows as an underspend that is only timing, the favourable variance that is really empty roles, which the companion workbook illustrates on research and development headcount.
A 1.25x rule of thumb gives 100,000 for this role, 26,073 short. Across a plan with 14 such hires that is 365,027 of cost missing from the budget, which then reappears as an adverse variance nobody can explain. The variance is not in performance; it is in the planning rate. Separating the two is the job of a flexible budget variance, and charging shared costs such as space to segments is covered in how to allocate corporate overhead to segments.
Build the cost line by line, salary-driven and per-head separately: 126,073 on an 80,000 salary, 1.58x, and 68.52 per productive hour. Budget new hires on their in-year shape, not on a full-year multiplier. The free workbook for this book carries the operating expense test where an underspend turns out to be unfilled roles.
Build it rather than assume it, because it depends on salary. With the same illustrative rates and 22,500 of per-head costs, a 50,000 salary loads to 1.74x, 80,000 to 1.58x and 120,000 to 1.48x. A flat 1.25x would leave 26,073 out of the budget for the 80,000 role.
Divide the fully loaded annual cost by productive hours, not paid hours. 2,080 paid hours less 25 days of leave and holidays and 40 hours of training leave 1,840. A fully loaded cost of 126,073 is 68.52 an hour, 1.78 times the 38.46 that salary over 2,080 hours gives.
Months in role times the monthly recurring cost, plus one-off costs when incurred. A hire starting in month four costs 120,740 a year recurring, so 90,555 for nine months, plus a 16,000 recruiting fee: 106,555 in year one, against the 60,000 a salary-only budget shows.
This article is one calculation from Financial Planning and Analysis. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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