The True Cost of Hiring an Employee: Why Salary Is Only Part of the Equation

When an organization considers hiring someone, the first number that usually comes to mind is salary.

But a $70,000 employee doesn’t simply cost $70,000.

Employers also pay for benefits such as health insurance, paid leave, payroll taxes, retirement contributions, workers’ compensation, and other employment-related expenses. There may also be additional costs for recruiting, equipment, software, onboarding, and training.

Understanding the full picture makes it easier to compare hiring with other ways of adding capacity.

What Does an Employee Actually Cost?

According to the U.S. Bureau of Labor Statistics (BLS), private-industry employers in March 2026 paid an average of:

• $32.60/hour in wages and salaries
• $14.01/hour in employee benefits
• $46.60/hour in total compensation

That means benefits added approximately 43% on top of wages.

Put another way:

$46.60 ÷ $32.60 ≈ 1.43×

This is why Penguin Advisory Group uses 1.43× salary as a general compensation benchmark when an organization’s actual employment costs aren’t available.

For example:

$70,000 salary × 1.43 = approximately $100,100 in estimated total compensation.

A $70,000 salary often represents closer to $100,100 in total compensation once benefits and employment costs are included.

Does Company Size Matter?

Yes. The 1.43× figure is a national benchmark—not a universal rule.

BLS data shows that private-industry establishments with 1–49 workers averaged total compensation of approximately 1.35× wages, while establishments with 500 or more workers averaged approximately 1.54× wages.

Other factors, including industry, occupation, benefits, and location, can also affect the actual cost.

That’s why PAG’s approach is simple:

• Use the organization’s actual costs when available
• Use a more relevant benchmark when possible
• Use 1.43× as a general starting point when neither is available

Compare Cost to Cost — Not Cost to Salary

This matters when organizations evaluate different ways to add capacity.

If a company compares a $60,000 external solution with a $70,000 employee, the difference may initially appear small.

But using the national benchmark:

• Employee salary: $70,000
• Estimated total compensation: $100,100
• External solution: $60,000

That doesn’t automatically make the external solution the better choice. Some positions absolutely belong in-house.

The point is to make sure the comparison starts with realistic numbers.

Finding the Right Solution

When an organization needs more capacity, hiring isn’t the only option.

The right solution could be:

• Hiring a permanent employee
• Adding external talent
• Outsourcing a defined project
• Improving or automating an inefficient process

The better question isn’t simply:

“What salary would we pay?”

It’s:

“What does it actually cost to create the capacity we need?”

At Penguin Advisory Group, we help organizations answer that question and determine whether the right solution is talent, technology, or project-based support.

Because the goal isn’t simply to hire for less.

It’s to find a smarter way to create the capability your organization needs.

Source

U.S. Bureau of Labor Statistics, Employer Costs for Employee Compensation — March 2026.

PAG’s 1.43× benchmark is derived from BLS private-industry averages of $46.60/hour in total compensation and $32.60/hour in wages and salaries. Actual employer costs vary by organization.