How much does it cost to hire an employee? Take a look at the chart below.
An employee's cost to the company is more than just the wage or salary you offer them. You are required to pay taxes on the wages your employee earns. Some of these taxes are split between the employer and the employee, while others are the sole responsibility of the employer. The rates vary based on the employee’s earnings. You can chalk it up to the cost of doing business, but it’s important to understand what your true cost will be before making that next key hire.
Your true cost to hire is a sum of the employee wage plus employer taxes. Of course there are additional expenses that are optional for businesses, like health and dental benefits, equipment, and office space, but for now let’s just focus on the payroll costs.
In California the payroll tax rates for employers break down like this:
Social Security: Social Security is a federal insurance program that provides benefits to retired employees and the disabled. Employers must pay 6.2% of taxable wages on the first $113,700.
Medicare: Medicare is a federal system of health insurance for people over 65 and certain younger people with disabilities. Employers must pay 1.45% of taxable wages on the first $200,000, then 2.35% of taxable wages beyond that.
California Unemployment: A state-sponsored insurance program, California provides benefits to unemployed workers, the disabled, and those on paid family leave. The employer tax rate varies from 1.5% to 6.2% of taxable wages on the first $7,000 depending on the rate given to you by the Employment Development Department (EDD). The standard new employer rate is 3.4%.
Federal Unemployment: The Department of Labor oversees state unemployment programs that provide benefits to workers who become unemployed due to no fault of their own, and meet certain other eligibility requirements. The employer rate of 1.2% of taxable wages on the first $7,000 per employee is dependent on your timely filing of all state unemployment taxes and includes a credit reduction for California.
Employment Training Tax: The ETT provides funds to train employees in targeted industries to improve the competitiveness of California businesses. Employers must pay an extra 0.1% of taxable wages on the first $7,000.