Employers pay 7.65% in FICA taxes (6.2% Social Security + 1.45% Medicare) on each employee's wages, plus FUTA (0.6% on the first $7,000) and state unemployment tax (SUTA). The true cost of an employee is typically 1.25× to 1.4× their salary once you include payroll taxes and benefits.
- Employer FICA is separate from — and in addition to — employee withholding
- FUTA applies only to the first $7,000 of each employee's wages
- SUTA rates vary widely by state and employer claims history
Understanding Employer Payroll Taxes
Employer payroll taxes are the taxes businesses must pay on top of each employee's wages. These are separate from employee withholdings — the employer pays their own share in addition to remitting what was withheld from the employee.
FUTA Tax Basics
The Federal Unemployment Tax Act (FUTA) funds the federal unemployment system. Only employers pay FUTA — employees are never charged. The effective rate is 0.6% on the first $7,000 of each employee's annual wages, for a maximum of $42 per employee per year.
Base Rate: 6.0%
State Credit: 5.4%
Effective Rate: 0.6%
If your state has outstanding federal unemployment loans, the 5.4% credit may be partially reduced, increasing your effective FUTA rate. Check the IRS credit reduction list annually to see if your state is affected.
SUTA Tax by State
State Unemployment Tax Act (SUTA) rates vary significantly. New employers typically pay a default rate, while established employers get an “experience rating” based on their claims history — fewer layoffs generally mean a lower rate.
| State | Rate Range | Wage Base |
|---|---|---|
| California | 1.5% – 6.2% | $7,000 |
| Texas | 0.31% – 6.31% | $9,000 |
| New York | 2.1% – 9.9% | $12,500 |
| Florida | 0.1% – 5.4% | $7,000 |
| Pennsylvania | 1.419% – 10.3734% | $10,000 |
| Washington | 0.27% – 6.39% | $67,600 |
The wage base — the amount of each employee's wages subject to SUTA — ranges from $7,000 (matching FUTA) in many states to over $60,000 in states like Washington.
True Cost of Employment
Beyond wages and payroll taxes, employers typically pay for health insurance, retirement contributions, workers' compensation, and other benefits. A common rule of thumb is that an employee costs 1.25× to 1.4× their base salary.
| Cost Category | Typical Range | On $60K Salary |
|---|---|---|
| Employer FICA | 7.65% | $4,590 |
| FUTA | $42/employee | $42 |
| SUTA (average) | 1% – 5% | $420 – $700 |
| Health Insurance | $6,000 – $16,000/yr | $6,000 – $16,000 |
| Workers' Comp | 0.5% – 3% | $300 – $1,800 |
| 401(k) Match (3%) | 3% | $1,800 |
| Estimated Total Cost | — | $73,152 – $84,932 |
Frequently Asked Questions
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