Headcount cost calculator: what a team really costs

How headcount cost is calculated

For each role the calculator takes the gross salary of every person, adds the employer on-costs as a percentage of that salary, and adds a fixed overhead per person per year. The role totals are added up for the team; dividing by twelve gives the monthly figure and dividing by the number of people gives the cost per head.

The on-cost percentage and the overhead are assumptions that you control. The starting values are only a typical level for planning, they are not tax advice, and your payroll provider or accountant has the real numbers. Amounts can be typed with either decimal convention, so 85,000 and 85.000 both mean eighty-five thousand.

Worked example

A product manager earns $85,000 gross and two designers earn $68,000 each. Assume 20 % employer on-costs and $5,000 of overhead per person per year.

Product manager: 1 × $85,000 × 1.20 + 1 × $5,000 = $107,000. Designers: 2 × $68,000 × 1.20 + 2 × $5,000 = $173,200.

Together the team costs $107,000 + $173,200 = $280,200 a year, or $23,350 a month. Spread over 3 people that is $93,400 each, about 1.27 times the gross salaries of $221,000.

What employer on-costs include

On-costs are everything an employer pays because someone is employed, on top of the gross salary. The mix differs from country to country, and the percentages below are rough figures for planning that change with salary level, contract and year:

• United States: employer payroll taxes, including 6.2 % Social Security and 1.45 % Medicare, plus unemployment insurance, workers’ compensation, and benefits such as health cover and a retirement match. In planning models the total often lands somewhere between 20 and 30 % of salary.
• Germany: the employer share of social insurance (pension, health, unemployment and long-term care) is roughly 21 % of gross pay within the contribution ceilings, plus accident insurance and levies.
• France: employer contributions are commonly in the region of 40 to 45 % of gross pay for a typical salary and lower near the minimum wage because of reductions.

IRS: employment taxes for employers

Fully loaded cost vs salary

The salary in an offer letter is the smallest number in the budget. The fully loaded cost adds on-costs and the costs of keeping someone productive, such as a laptop, software licences, a desk or co-working space, and training. The ratio between the two is the load factor, shown under the results. A factor of 1.27 means every dollar of salary costs $1.27 to the employer.

Comparing offers or locations by salary alone can mislead. A lower salary in a country with high on-costs can cost more than a higher one elsewhere. Compare the loaded cost, and keep the assumptions visible so the comparison can be checked.

Planning a hire

A new hire costs more than the monthly figure in the first year and delivers less than full output for the first months. When you plan one, remember the items that do not show up in a salary:

• Recruiting costs: agency fees are often agreed as a percentage of the first-year salary, so check your own contract.
• Ramp-up: budget for several months before the person is fully productive, and for the time colleagues spend onboarding them.
• Equipment and set-up, which belongs in the overhead field.
• Variable pay, equity or bonuses, which you can include by raising the on-cost percentage or adding a row for them.
• Part-year cost: a hire who starts in July costs only half of the annual figure in the first calendar year.

Budgeting with an org chart

A headcount budget is easier to defend when it is tied to a structure. Put each planned role on the chart, mark it as open, and total the loaded cost per team and per department. When someone asks why a team needs two more people, the chart and the cost sit on the same page.

Use part positions to match reality. The people column takes whole numbers, so enter a part-time employee as one person with their actual part-time salary. For a team with many part-timers, you can also enter the full-time-equivalent salary and count heads.