When business leaders think about hiring, the instinctive starting point is often salary. What’s the annual wage? How does it compare to market? That’s a logical place to begin.
But focusing solely on salary is like judging a vehicle by its sticker price. It captures the most visible number… while overlooking the majority of the investment. To make sound decisions about workforce planning, budgeting, and profitability, leaders need to understand the all-in cost of an employee.
Sticker Price vs. True Cost: A Useful Comparison
Consider a 2022 Ford F-150. While the sticker price is $38,810, the true cost to own the vehicle over five years is significantly higher once depreciation, fuel, insurance, maintenance, financing, and fees are included.
5-Year Cost Breakdown of a 2022 Ford F-150
| Cost Category | 5-Year Total | Notes |
| Purchase Price (Sticker) | $38,810 | Starting MSRP |
| Depreciation | $15,215 | Loss in resale value over 5 years |
| Fuel | $11,351 | Based on 15,000 miles/year |
| Insurance | $7,618 | Average annual coverage |
| Maintenance | $7,510 | Scheduled service, oil changes, etc. |
| Repairs | $2,513 | Expected repair costs |
| Taxes & Fees | $2,432 | Registration and annual fees |
| Financing | $6,260 | Interest costs over loan term |
| True Cost to Own (5 Years) | $52,899 | |
| You’ll Spend 36% More Than Sticker Price | That’s an extra $14,089! |
Source: Edmunds True Cost to Own® calculator, based on 15,000 miles driven per year
The Bottom Line: That $38,810 sticker price? It’s actually a $52,899 investment — 36% more than you initially budgeted!
Well, the same math applies to your workforce. How so?
Salary Is Only the Starting Point
At its core, the all-in cost of an employee includes every dollar your business spends to recruit, retain, and empower that person. You can start with salary or hourly wages — that number is visible and tangible. But underneath, a cascade of additional costs can increase the real economic impact by 25-40% (or more!) beyond base pay.
What kinds of additional costs are we talking about?
Benefits
One major component is employee benefits. Health insurance, retirement plan contributions, life and disability coverage, and other perks are often the second-largest line item after salary. Paid leave (vacation, holidays, sick days) also counts here.
These benefits are essential for retention and well-being, but they are real costs that must be accounted for in any financial model.
Taxes
Payroll taxes are another unavoidable piece of the equation. Employers must pay their share of Social Security and Medicare contributions, along with unemployment taxes and workers’ compensation premiums.
These legally required payments are directly tied to payroll and should be projected just as carefully as wages.
Soft Costs
Beyond benefits and taxes, effective financial planning requires leaders to consider the soft costs of hiring. Recruitment, onboarding, and training all take time and resources.
Whether you use an outside recruiter or dedicate internal staff time to screening and interviews, hiring comes with real, measurable expense. Plus, once onboarded, new employees experience a learning curve, and that reduced productivity carries a cost as well.
Management
Supervision and management time also factor into the all-in cost. Employees rely on ongoing coaching, performance evaluations, course corrections, and support.
The time managers spend developing their teams is an essential investment, but it is still part of the full cost of having someone on payroll.
Tools and Facilities
Finally, every employee relies on infrastructure and overhead to do their job. Office space, software licenses, equipment, and technology support all represent real dollars tied to each role.
These costs may not be visible on an employee’s pay stub, but they are absolutely part of the organization’s financial picture.
What Does This Look Like in Practice?
Let’s break down the all-in cost for a $60,000 salaried employee:
| Cost Category | Annual Cost | Notes |
| Base Salary | $60,000 | The “sticker price” |
| Health Insurance | $8,400 | Employer portion of premium |
| Retirement Contribution | $3,000 | 5% employer match |
| Payroll Taxes | $4,590 | Social Security, Medicare, unemployment |
| Workers’ Compensation | $900 | Varies by industry and state |
| Paid Time Off | $2,300 | 2 weeks vacation + holidays + sick days |
| Supervision & Management | $6,000 | 1 supervisor per 8 employees (allocated cost) |
| Recruiting & Onboarding | $2,000 | Amortized over employment period |
| Training & Development | $1,500 | Initial and ongoing training |
| Equipment & Technology | $2,500 | Laptop, software licenses, phone |
| Workspace & Overhead | $3,600 | Office space or remote stipend, utilities |
| Total All-In Cost (Year 1) | $94,790 | |
| You’ll Spend 58% More Than Salary | That’s an extra $34,790! |
Just like smart fleet managers calculate total ownership costs before buying trucks, savvy business leaders calculate all-in employee costs before expanding their teams. That $60,000 salary becomes a $94,790 investment.
The Value of Measuring Your All-In Cost Accurately
Understanding the full picture of an employee cost isn’t just an accounting exercise — it’s a strategic advantage. When you measure all-in cost accurately, you can hire with confidence, price your services correctly, and make decisions that protect your margins while investing in high performers. Don’t stop with a new hire’s salary number. Think about the complete investment and what you get in return.
Want to model your workforce costs accurately and uncover hidden opportunities for efficiency and growth? Book a free consultation with our team.