The Real Cost of Your First Employee

Most first hires are budgeted on salary. Salary is the largest single number and the easiest to compare against revenue, so it is the one that gets modelled.

It is also, reliably, not the number the hire actually costs.

The employer side of payroll tax

An employer matches the Social Security and Medicare contributions withheld from an employee’s pay, and pays federal and state unemployment tax on top. None of that appears on the employee’s offer letter.

If you have been self-employed, you were already paying both halves yourself through self-employment tax. With an employee it becomes a separate, scheduled obligation with its own deadlines and its own penalties for missing them.

Insurance and the obligations that come with headcount

Workers compensation is generally required once you have employees, and the rate depends on what the work is. Some obligations only switch on above a certain number of staff, so the first hire is not always where they begin.

These vary by state more than almost anything else in running a business, which makes a remote hire in another state a different proposition from a local one.

The costs that never reach the ledger as payroll

Equipment, software seats, onboarding time, and the hours you spend managing rather than doing. The last one is the largest and the one nobody budgets, because it does not arrive as an invoice.

A first hire typically costs the owner a meaningful slice of their own productive week for the first couple of months. Planning for a hire to be immediately accretive is planning for the exception.

Contractor is not a cheaper version of employee

The costs above push people toward hiring a contractor instead. That is a legitimate choice when the relationship genuinely is a contractor relationship.

It is not a way to get an employee at a lower price. Misclassification is assessed on the back taxes plus penalties, which costs considerably more than doing it correctly would have.

How Exemplary Helps

Exemplary models the full cost of a hire, including the employer side and the state-specific obligations, before the offer goes out.

The salary is the part you already knew.