True cost of an employee

What does an employee really cost?

A wage is not what somebody costs. Add KiwiSaver, the levies an employer pays on top, and the hours you pay for but can't sell — then work out what an hour of their time is really costing you.

Free, and there's nothing to sign up forNo email, no account, no results-by-download. Figures for New Zealand from IRD and the statutory sources listed under the calculator.
Fine-tune your numbersWorkers' compensation rate, sick days you'd expect a year and other costs a year
They cost you$44.10per hour you can actually sell

The wage alone looks like NZD 34.41 an hour. It isn't.

On top of the wage, they cost you $6,740 a year — and you get fewer hours than you're paying for.

Hours you can actually sell1,694.8 hoursYou pay for 1976 contracted hours a year. 32 days of leave and public holidays plus 5 sick days take 281 of them back — paid, and unsellable.
Wage$68,000.00
KiwiSaver employer contribution$2,380.003.5% of the wage.
Workers' compensation$1,360.002% of the wage.
Other costs$3,000.00Phone, tools, training, protective gear, vehicle share.
Total a year$74,740.0028% more than the wage, per productive hour.

Why the wage is never the cost

Two separate things push the real number up, and they compound. Most people costing a hire miss both.

  • Levies sit on top of the wage. KiwiSaver is the big one, and in most markets there's an employer payroll levy alongside it. Workers' compensation is compulsory everywhere and is charged as a percentage of what you pay out.
  • You buy hours you can't sell. Annual leave, public holidays and sick days are all paid, and none of them can be invoiced. On a standard week that's around six weeks a year gone before anybody picks up a tool.
  • The two multiply. A bigger annual cost divided by fewer sellable hours moves the hourly figure much further than either does alone — which is why the headline above is usually 30–40% above the wage rate people have in their head.

This is the number to price against, not the wage. If you're quoting a job at your own charge-out rate and paying somebody else to do it, the margin is the gap between that rate and this figure — not between it and their wage.

Before you take somebody on

The honest test isn't whether you can afford the wage. It's whether there's enough billable work to cover the number above, consistently, through a quiet month.

Work out your own charge-out rate first, then look at the gap. If an employee costs you $45 an hour and you can bill their time at $95, the difference has to cover their unbillable hours, your time supervising, and the overheads neither of you shows up in — before any of it is profit.

Common questions

True cost of an employee, answered.

Not always, and this is where most spreadsheets get it wrong. Some markets apply the rate to the entire wage; others apply it only to a band — an amount exempt at the bottom, a ceiling at the top, or both. The calculator uses the band IRD actually publishes, which is why the figure can be smaller than the rate times the wage. The breakdown says so on the line itself.

Because you can't invoice annual leave. If you pay for 1,976 hours and roughly 270 of them are leave, public holidays and sick days, then the year's cost is spread over about 1,710 sellable hours — and dividing by the contracted figure understates what an hour costs you by around 15%. That is the single biggest reason a hire looks more affordable than it turns out to be.

Your own invoice, in most markets. It's compulsory everywhere, but it's priced by trade, payroll and claims history — by a state or provincial scheme, or by a private insurer — so there is usually no national rate to publish. Where an authority does publish an average we've used it and said so under the calculator; otherwise the figure in the field is a starting point to replace with yours.

No, and apprentices genuinely are cheaper than this suggests — lower award wages, and in some markets incentives or reduced levies. Use the calculator with the apprentice's actual wage; the on-costs and the lost-hours arithmetic still apply the same way.

Add them to the wage figure if they're regular, because most levies apply to them too. Leave them out if they're occasional — you'll get a cleaner base number, and it's easy enough to run it twice.
30 days freeNo card needed

Stop losing the hours you can't bill. 30 days, no card.

Quoting, chasing and job admin are the hours this calculator just made you count. ServiceYak is where they go.

Start your free trialSee pricing
No card needed 30 days free Cancel anytime