# How to Calculate Hourly Cost of an Employee

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:

1. Double the gross salary (\$150,000)
2. Divide by 50 because a work year includes 50 weeks (\$150,000/50 = \$3,000)
3. Divide by 40 because a work week includes 40 hours (\$3,000/40 = \$75)

• You're the Boss Blog: This Week in Small Business: Be a Plumber | New-York NewsNew-York News says:

[…] in a spaceship helps keep Groupon’s employees on task. Tim Berry explains how to calculate the hourly cost of an employee. SAP plans to hire a “whole bunch” of people with autism. A hairy, grown man […]

• This Week in Small Business: Be a Plumber - NYTimes.com says:

[…] in a spaceship helps keep Groupon’s employees on task. Tim Berry explains how to calculate the hourly cost of an employee. SAP plans to hire a “whole bunch” of people with autism. A hairy, grown man […]

• Bob Johnson says:

Thanks, That is going to help with my department via of my small company. Kinda opens my eyes to hiring new employees.