The True Cost of an Employee, Beyond Their Salary (2026)

Quick answer

An employer is responsible for two kinds of payroll tax: money withheld from an employee's pay and passed on to the government, and money the business pays on top of wages. At the federal level, an employer withholds federal income tax, withholds the employee's share of Social Security and Medicare tax and pays a matching employer share, and pays federal unemployment (FUTA) tax, which comes from the employer alone. The IRS sets these out in Publication 15, its employer's tax guide, and updates the rates and wage bases there each year.

States add their own layer. IRS Publication 15 notes that most employers pay state unemployment tax as well as federal. Many states also require income tax withholding, some localities add their own taxes, and workers' compensation is governed by state law that differs sharply from one state to the next. Beyond the taxes, the true cost of an employee includes a payroll service fee and the administrative time spent on forms, records and deadlines.

Which payroll taxes does an employer pay, and which does it only withhold?

Only one category is a cost to the business. Withheld taxes come out of the employee's gross pay: the business calculates, holds and deposits them, but the money was always the employee's. Employer taxes are paid on top of gross wages, and they are what push the cost of an employee above their salary.

The federal rows below follow IRS Publication 15. The state and local rows depend on where the employee works.

Social Security and Medicare show the split most clearly: the employer withholds the employee's share and pays an equal share of its own. Publication 15 also describes an Additional Medicare Tax withheld from higher earners' wages that the employer does not match, with the threshold in the current edition. FUTA is never withheld from the employee; only the employer pays it.

Why doesn't this page list the tax rates?

Because they change. The Social Security wage base moves from year to year and state unemployment rates are assigned business by business, so a rate copied from an old article is an easy way to underpay. The reliable sources are the current edition of Publication 15 for federal figures and the state unemployment agency for a specific business's rate.

What varies by state?

Almost everything after the federal layer:

• State unemployment insurance tax. Most employers pay it alongside FUTA, as Publication 15 notes, at a rate the state agency assigns.
• State income tax withholding. This applies where the state levies an income tax.
• Local taxes. Some cities, counties and other localities impose their own.
• Workers' compensation. This is state law, covered below.
• Pay frequency. The Department of Labor's summary of state payday requirements shows the range. California requires wages at least twice per calendar month on days designated in advance, Colorado requires monthly pay, and Connecticut requires weekly pay unless the labor commissioner approves a longer interval.

The DOL advises checking with the relevant state labor office for official information, and that applies to every item here. Pay frequency is not a tax, but more pay runs mean more approvals and more chances for error. An employee who works in a different state from the business can also bring a second state's rules into play.

Is workers' compensation required?

That depends on the state. Whether coverage is required, who it applies to and how it is arranged are all set by state law, and the rules differ sharply. Check with the state's workers' compensation agency before the first paycheck, and where coverage is required, count it in the cost of each hire.

What paperwork sits underneath the taxes?

The first document is the Employer Identification Number, which IRS Publication 15 describes as the number used to identify an employer's tax accounts. Payroll runs under it, so it has to be in place before the first paycheck.

The IRS's hiring guidance sets out the rest. "All U.S. employers must properly complete Form I-9 for every individual they hire for employment in the United States." Employers should ask each new hire for a signed Form W-4 when they start work, effective with the first wage payment, and they need the employee's name and Social Security number for Form W-2.

What does misclassifying a worker cost?

A label or a contract does not make someone a contractor. The IRS weighs behavioral control, financial control and the type of relationship, and says that "no one factor stands alone in making this determination."

An employer who treats an employee as a contractor without a reasonable basis "may be held liable for employment taxes for that worker," according to the IRS. A business that is unsure can file Form SS-8 for an IRS determination, but the IRS warns that "it may take at least six months to receive a determination on your filing."

What if the owner is paid through an S corporation?

If you run an S corporation and work in it, your own pay is part of the payroll cost. The IRS states that S corporations "must pay reasonable compensation to a shareholder-employee" for services before non-wage distributions may be made, and that it has the authority to reclassify distributions as wages. That salary carries the same federal employer taxes as any other employee's wages.

What does a payroll service cost?

The providers below are listed alphabetically, which is not a ranking. Prices come from each provider's own pricing page as of October 6, 2026, and none include the payroll taxes the business still owes. The third column applies the cheapest published plan to three employees, base fee plus three per-person charges, before add-ons.

ADP

ADP does not publish payroll pricing and quotes each business individually. Its small-business product, RUN Powered by ADP, is built for businesses with 1 to 49 employees.

Gusto

Gusto publishes three tiers, from Simple at $49 a month plus $6 per person to Premium at $180 plus $22. The per-person charge is the figure to watch as headcount grows.

OnPay

OnPay charges $49 a month plus $6 per worker, which its pricing page presents as a $55 starting price. A single published rate makes it easy to budget.

Patriot Software

Patriot Software has the lowest published entry point here, Basic Payroll at $17 a month plus $4 per employee, and is the cheaper option at the very bottom of the market. Check which tier covers tax filing before comparing it with other providers' plans.

QuickBooks Payroll

QuickBooks Payroll bundles payroll with a QuickBooks Online plan, starting at $88 a month plus $6.50 per employee at the ongoing rate. Its offer of 50% off the base fee for three months is a promotional rate, not the ongoing price. The bundle suits a business that wants QuickBooks for its books anyway.

SurePayroll

SurePayroll starts at $29 a month plus $7 per worker. Multi-state payroll is a $9.99 monthly add-on, and household payroll starts at $39 a month.

ZenBusiness

ZenBusiness does not run payroll itself. It recommends RUN Powered by ADP: a customer requests the connection from the ZenBusiness dashboard, an ADP representative follows up about employee count and pay schedule, and ADP provides the quote. Customers may be eligible for promotional pricing, confirmed in that consultation and generally excluding state filing fees and add-ons. ADP is a separate service with its own platform, billing and support, payroll is not integrated into the ZenBusiness dashboard, and no ZenBusiness plan price includes it.

How much administrative time does payroll take?

More than most budgets allow for, and no provider invoices it:

• Onboarding. Collecting a Form I-9 and a signed Form W-4 from every new hire.
• W-4 changes. A W-4 stays in effect until the employee gives a new one, and the IRS says withholding under a replacement must begin "no later than the start of the first payroll period ending on or after the 30th day from the date you received the replacement Form W-4."
• Recordkeeping. Under the Fair Labor Standards Act, payroll records are kept for three years, and the records wage calculations are based on, such as time cards and wage rate tables, for two.
• Pay runs and reconciliation. Running payroll on the state's schedule and checking deposits against filings.

A full-service provider shifts much of the filing work off the business, but not the recordkeeping or onboarding. The owner's time is a real cost even when it never appears on a statement.

Where does the EIN come from, and where does ZenBusiness fit?

Payroll is the last step in a sequence. The business needs to exist as an entity, it needs an EIN, and its money should be separate from the owner's: the IRS lists opening a business checking account among the early steps in Publication 583. Only then does choosing a payroll provider make sense.

This is where ZenBusiness genuinely fits. It forms the entity and secures the EIN, and its own EIN page frames the number as what lets a business hire employees, set up a business bank account and file taxes. It also offers a registered agent and Money Pro bookkeeping, and routes payroll to ADP.

ZenBusiness states plainly that payroll cannot run without an EIN, and ZenBusiness sells the EIN for $99 on its own or includes it from the Pro plan up. For a first hire with no EIN yet, setting up in one place and requesting the ADP connection from the same dashboard is a reasonable path. Payroll itself is still ADP's, billed and supported by ADP.

Adding it up: what does one employee really cost?

The salary is the starting figure, not the total. The true cost of one employee adds the employer share of Social Security and Medicare and FUTA from the current Publication 15, the state unemployment rate, any local employer taxes, workers' compensation where required, the payroll fee at its ongoing rate, the administrative time, and any benefits offered. Withheld taxes are left out because they come from the employee's pay. Price the state items first, from official state sources, and the rest follows.

This is general information, not legal, tax or accounting advice, and payroll requirements vary by state and change over time.