After 6 years of operating my business with 1099 contractors, I’m transitioning to hiring W2 employees. I’m aware this will bring new challenges, and I’m ready to navigate them.
I’m planning to hire two part-time W2 employees: one at $20 per hour and another at $26 per hour. Since they will be part-time, I’m not including benefits for now. I understand that beyond their hourly wage, I’ll need to account for the cost of running payroll (about $35 per payroll with my tax professional), adding them to my workers’ comp, and payroll taxes.
For those of you who have experience with this, how much additional cost can I expect on top of the $26 per hour wage? Specifically, what should I consider for payroll taxes and any other expenses? I’m based in California, so any state-specific insights would also be appreciated.
Hiring a new employee costs more than just their salary. Typically, you should budget 1.25 to 1.4 times their salary to cover benefits and other expenses. For a $50,000 salary, expect total costs of $62,500 to $70,000. It’s wise to have six months of operating expenses saved before hiring.
Having run my own business for several years, I recently made the shift from using 1099 contractors to hiring W2 employees, which has been a significant but manageable change. In California, payroll taxes include Social Security (6.2%), Medicare (1.45%), federal unemployment tax (FUTA), state unemployment insurance (UI), and Employment Training Tax (ETT). These taxes, along with workers’ comp insurance and payroll processing fees, typically add around 10-15% to the hourly wage. So, for an employee earning $26 per hour, you can expect to pay an additional $2.60 to $3.90 per hour for taxes and other expenses. Given your payroll processing cost of $35 per payroll, this should be factored into your overall budget as well.
Hi all, after 6 years of operating my business with 1099 contractors, I’m transitioning to hiring W2 employees and am prepared for the new challenges. I plan to hire two part-time W2 employees: one at $20 per hour and another at $26 per hour, without benefits for now. Beyond their wages, I know I need to account for payroll costs (about $35 per payroll with my tax professional), workers’ comp, and payroll taxes. For those experienced in this, how much additional cost should I expect on top of the $26 per hour wage? Specifically, what should I consider for payroll taxes and other expenses? I’m based in California, so any state-specific insights would also be appreciated.
