For the sake of occasional business analysis — such as calculating return on investment (ROI) on a project, hiring a new employee, allocating costs — here’s a simple formula for calculating the hourly cost of an employee:
cost per hour = annual gross salary/1000
So the $75,000/year salary costs the company $75 per hour. The $30,000/year data entry person costs the company $30 per hour.
This quick and practical calculation is based on the assumption that the overhead, including payroll taxes, health insurance, benefits, office space, office equipment, telephone, Internet, electric power, transportation, and so forth costs the company about as much as the employee gross salary.
So the step-by-step calculation, using a $75,000 salary, is: