Reference
Hiring & payroll-tax glossary
The terms behind the true cost of a hire, in plain English. Each entry explains what the term means, how it works, and a worked example, with links to the calculators that use it.
Payroll taxes
The 7.65% federal payroll tax employers match on every employee's wages, funding Social Security and Medicare.
A federal unemployment tax paid only by employers, effectively 0.6% on the first $7,000 of each worker's wages.
The state-level unemployment tax employers pay on each worker's wages, with rates and wage bases that vary widely by state.
The cap on annual wages a payroll tax applies to; above it, no further tax of that type is owed for the year.
The flat state unemployment-tax rate a business pays on its first hires, before it has a claims history.
The system states use to set an employer's unemployment-tax rate based on its history of layoffs and claims.
The annual wage cap (2026: $176,100) above which the 6.2% Social Security portion of FICA stops applying.
Mandatory insurance that covers job-related injury and illness, priced as a premium per $100 of payroll.
Worker classification
A worker on payroll for whom the employer withholds taxes and pays employer payroll taxes, benefits, and workers' comp.
A self-employed worker paid a contract amount with no employer payroll taxes, benefits, or withholding.
Treating a worker who legally should be a W-2 employee as a 1099 contractor, which exposes the employer to back taxes and penalties.
A strict three-part test many states use to decide whether a worker is an independent contractor or an employee.
Cost concepts
The true annual cost of a W-2 employee: base salary plus all employer taxes, benefits, workers' comp, and overhead.
The percentage (or multiplier) by which an employee's fully-loaded cost exceeds their base salary.
The 1099 contract amount at which hiring a contractor costs the same as the fully-loaded W-2 employee.