How to calculate labor cost for part-time vs. full-time employees?

It works the same way for both. Here’s the simple approach: Take the hourly wage and multiply it by hours worked per week Multiply that by the number of weeks worked per year Add payroll taxes and any benefits on top The only real difference is that part-time employees usually don’t get full benefits like health insurance. So the benefits percentage will be lower for them. Just enter the actual hours and adjust the benefits percentage in the calculator to match what each employee receives.

Are recruiting and onboarding expenses considered part of labor cost?

They are not included in the standard calculation. But they are a real cost of hiring. Before the employee even starts, you’re spending on job ads, interviews, and background checks. Then once they join, there’s training time and a few weeks where they’re still getting up to speed. All of that costs the business time and money. For most small businesses, this adds up to $3,000 to $5,000 per new hire. The calculator won’t include these, but it’s worth keeping them in mind when deciding if a new hire makes financial sense right now.

What's a good labor cost percentage for a small business?

Restaurants run 30 to 35% because staff handles everything from prep to service. Professional services firms sit at 50 to 60% because the only thing being sold is time and expertise. Retail runs 15 to 20% because a large part of the work is self-service or part-time. If labor cost as a percentage of revenue keeps rising while revenue stays flat, costs are outpacing output, and that needs fixing.

What's the difference between labor cost and labor rate?

The rate is on the paycheck. The cost is what the business actually pays for that person to show up. A $20 rate becomes $25 to $28 once FICA, workers’ compensation, and benefits are included. One number the employee sees. The other is what the business carries every single pay period.

Labor Cost Calculator: Calculate Total Employee Wages & Payroll Expenses

What is labor cost (and why is it more than just wages)?

Labor cost is the total amount a business spends on an employee. It includes wages and all other costs needed to keep that person working.

An employee paid $22/hour usually costs $28 to $32/hour. The extra $6 to $10 comes from added costs, not just wages.

There is a 7.65% payroll tax on every paycheck. That is about $1.68/hour on $22 wages. Workers’ compensation adds around 1–2%. Health insurance can cost $500 to $700 per month. Paid time off adds about 4–6%. Retirement benefits add more.

In the first year, hiring also includes extra costs. Job ads, interview time, and onboarding can cost $3,000 to $5,000 before the employee starts producing work.

How to use this calculator?

Calculate the total cost of your employees using the inputs below.

Number of employees: Add the total number of employees. The calculator result will show the total cost and the cost per employee.
Average hourly wage: Enter the hourly pay. For salary, divide yearly pay by 2,080 hours.
Hours per week and weeks per year: Use actual work hours. Full-time is usually 40 hours and 52 weeks. Adjust if part-time or seasonal.
Overtime pay: Enter yearly overtime per employee. Overtime is paid at 1.5× the hourly rate for hours above 40 per week.
Benefits percentage: Enter benefits as a percentage of wages. Most businesses fall between 20% and 30%, depending on coverage.
Payroll tax rate: Start with 7.65% for FICA. Add state unemployment tax, which varies by state and business history.

How to manage labor costs without cutting staff?

When labor costs climb, most businesses look at headcount first. That is rarely where the real problem sits.

Check overtime before anything else. A team regularly working overtime usually points to a shift structure issue, not a shortage of staff. Adjusting how hours are spread across the week often brings overtime down without touching the payroll.

Cross-training is another practical option. An employee who can cover two roles means the business does not need outside help every time someone is absent. Temporary staff cost more per hour and take time to settle in before they are useful.

Where workload shifts week to week, running a mix of full-time and part-time staff gives better cost control. Full-time staff carry the full benefits load. Part-time staff usually do not. That difference has a real impact on the cost per hour worked.

For short-term or specialist work, a contractor often works out cheaper than a full-time hire even at a higher hourly rate. No benefits, no payroll taxes, no paid leave. The total for a defined piece of work tends to come in lower. If you are planning staffing, tools like Upmetrics let you model different combinations and see the cost impact before making any commitments.

Labor Cost Calculator