Most international companies underestimate the cost of their first US hire. Not by a little. By enough to cause real problems in the business case and, once the hire is made, real surprises in the monthly payroll run.
The gap is not usually the salary. That part gets modelled carefully. The gap is everything on top of the salary: the employer payroll taxes, the health insurance obligations, the retirement savings match, the workers’ compensation insurance, the state-specific unemployment contributions, and the administrative infrastructure needed to run it all correctly.
This guide walks through every cost line for a US hire, explains how each works, provides verified 2025/2026 figures, and gives you a cost model you can use directly in a board presentation or finance review. All numbers are sourced. Nothing here is invented or estimated from outdated data.
Why US Employment Costs Surprise International Companies
International companies building their first US cost model typically start with the salary and add a rough percentage for taxes and benefits. In the UK, that percentage is relatively predictable: 15% employer NI on earnings above £5,000, a 3% pension minimum, and some modest additional costs. The structure is well understood.
In the US, the structure is different:
- There is no universal healthcare. You are funding your employee’s access to medical coverage.
- Payroll taxes are split across federal and state levels, with separate filing systems and schedules for each.
- Employment cost obligations vary significantly by state.
- Some of the most significant costs, particularly health insurance, are market norms rather than statutory requirements, which means they do not show up in HMRC-style employer guidance but will show up in your monthly invoice.
The result is that a company that plans for “salary plus 10-15%” will often find the true cost running to salary plus 20-25% once all mandatory and expected costs are factored in. At lower salaries, where health insurance is a larger share of the total, the uplift can push toward 25-30%.
Understanding this before you make the hire means the business case is defensible. Understanding it after means a difficult conversation with your board about a budget that did not hold.
The Full Cost Stack: Every Line Item
1. Base Salary
This is the number your employee negotiates and expects to receive as gross pay. It is the starting point for every other calculation.
US salary levels vary significantly by role, seniority, sector, and location. A sales hire in San Francisco will command materially more than one in Austin for an equivalent role. A software engineer in New York will expect more than one in Raleigh. Our guide to US salary benchmarking covers how to benchmark correctly for your role and location.
For the worked examples in this guide, we use three salary levels:
- Entry-level hire: $70,000 per year
- Mid-level professional: $100,000 per year
- Senior hire: $150,000 per year
2. Employer FICA (Federal Payroll Taxes)
FICA (Federal Insurance Contributions Act) funds Social Security and Medicare. Employers and employees each pay half.
Current rates for 2026 (confirmed by the IRS):
- Social Security: 6.2% of wages, up to the wage base of $184,500
- Medicare: 1.45% of all wages, with no upper limit
- Combined employer FICA rate: 7.65%
FICA is not optional. There are no thresholds below which you do not pay. From the first dollar of wages, you are paying 7.65% on top as an employer.
Salary | Employer FICA |
$70,000 | $5,355 |
$100,000 | $7,650 |
$150,000 | $11,475 |
3. Federal Unemployment Tax (FUTA)
FUTA funds federal unemployment benefits. The gross rate is 6.0% on the first $7,000 of each employee’s wages, but employers who pay their state unemployment insurance (SUTA) on time receive a credit of 5.4%, reducing the effective rate to 0.6%.
Effective FUTA cost per employee, per year: $42
This is a small but real cost. On a small team it is minimal. It does not scale with salary.
4. State Unemployment Insurance (SUTA)
Every state charges its own unemployment insurance tax. The rate, the wage base it applies to, and the calculation method all vary by state.
New employers typically pay a standard new employer rate for the first one to three years. After that, they move to an experience-rated rate based on their claims history.
Typical new employer SUTA rates by major state:
- California: 3.4% on wages up to $7,000 = up to $238 per employee
- Texas: 2.7% on wages up to $9,000 = up to $243 per employee
- New York: 3.4% on wages up to $13,000 = up to $442 per employee
- Florida: 2.7% on wages up to $7,000 = up to $189 per employee
SUTA is a cost most international companies miss entirely in their initial modelling. It is entirely invisible to the employee. It does not appear anywhere on the pay stub. But it is a real employer obligation in every state where you have employees, and you must register separately with each state’s unemployment agency.
5. Health Insurance
This is the line item that most significantly differentiates US employment costs from UK employment costs.
In the UK, employer-funded healthcare is optional. Employees are covered by the NHS regardless.
In the US, there is no universal coverage. Employers are expected to provide health insurance, and the quality of that coverage is a material factor in your ability to attract and retain employees.
According to KFF’s 2025 Employer Health Benefits Survey, the authoritative source on US employer health costs:
- Average total premium for single coverage: $9,325 per year
- Average employee contribution (single): $1,368 per year
- Average employer share (single): approximately $7,957 per year
- Average total premium for family coverage: $26,993 per year
- Average employer share (family): approximately $20,143 per year
For your cost model, use the following benchmarks per employee:
Coverage | Employer annual cost |
Single coverage | ~$7,957 |
Family coverage | ~$20,143 |
A common starting assumption is that roughly 50-60% of your employees will take single coverage and 30-40% will take family coverage. A small team of four or five people with mixed coverage might cost $45,000 to $55,000 per year in employer health insurance premiums alone.
For a company’s very first US hire, single coverage is typically the default. Budget $8,000 to $10,000 per year in employer health insurance premium for a single hire.
Why quality matters:
US candidates will ask about the health plan in the hiring process. They want to know the network (which hospitals and doctors are covered), the deductible (how much they pay before insurance kicks in), and the out-of-pocket maximum (the most they could pay in a given year). A plan with a very high deductible is perceived as poor coverage, even if the premium is lower. Compete on plan quality, not just on whether you offer insurance at all.
If you are hiring through an EOR or PEO, your employee accesses a group plan with group rates, which are significantly better than what a small new employer could access independently. This is one of the most tangible operational advantages of the EOR and PEO models.
6. 401(k) Employer Match
There is no statutory requirement for US employers to offer a 401(k) retirement plan or to make matching contributions. In practice, candidates in professional and skilled roles will expect a 401(k) with an employer match, and its absence is a negative signal.
According to Fidelity, the average employer match in 2025/2026 is between 4% and 6% of employee compensation, with the most common structure being a 50% match on the first 6% of salary the employee contributes.
For budgeting, use 3% of base salary as your employer cost estimate (which represents the cost of a 50% match on the first 6% at typical employee participation):
Salary | 401(k) cost at 3% match |
$70,000 | $2,100 |
$100,000 | $3,000 |
$150,000 | $4,500 |
If you are using an EOR or PEO, the 401(k) plan is provided within the service structure. You do not need to set up and administer your own ERISA-compliant plan.
7. Workers’ Compensation Insurance
Workers’ compensation is mandatory in almost every US state. It covers employees who suffer work-related illness or injury and provides both medical treatment and wage replacement.
Workers’ comp premiums are calculated as a rate per $100 of payroll, using classification codes that reflect the risk level of the employee’s role. Office and administrative workers carry the lowest rates; physically demanding roles carry the highest.
National average workers’ comp rate (2025 data): approximately $1.03 per $100 of payroll. For a typical office worker (NCCI code 8810), the rate is approximately $0.35 per $100.
Salary | Workers’ comp at $0.35/$100 (office role) |
$70,000 | $245 |
$100,000 | $350 |
$150,000 | $525 |
For roles with higher physical risk, rates will be substantially higher. For sales or field roles that involve significant travel or physical activity, check the applicable classification code for your hire’s role and state.
8. Dental and Vision Insurance
Not legally required, but widely expected as part of a competitive benefits package. Typical employer costs:
- Dental insurance: $300 to $600 per employee per year
- Vision insurance: $100 to $200 per employee per year
These are relatively modest costs but they matter to employees. Including dental and vision in your benefits package is standard practice among employers competing for professional talent.
9. Life Insurance and Disability Insurance
Basic life insurance (typically 1x annual salary) and short-term disability insurance are commonly offered as employer-funded benefits. Cost varies by coverage level and provider but typically runs:
- Basic life insurance: $100 to $300 per employee per year
- Short-term disability: $200 to $600 per employee per year (varies significantly by salary and benefit level)
Long-term disability is often employee-paid but may be partially employer-funded in more generous packages.
10. Paid Time Off (PTO)
PTO is not a direct cash cost in the same way, but it represents a real cost in terms of salary paid for non-working days.
US employers typically offer 10 to 15 days of paid vacation for new hires, plus 10 federal holidays (though there is no federal mandate on holiday pay). Many employers combine vacation, sick, and personal days into a single PTO bank of 15 to 20 days per year.
For budgeting, think of PTO as a percentage of total salary: 10 days of PTO on a $100,000 salary adds approximately $3,846 in salary cost for non-productive days (10/260 working days x $100,000).
11. Employer Payroll Administration Costs
Running payroll in the US requires either in-house payroll infrastructure or a payroll service. These costs vary but typically run:
- Payroll software or service: $200 to $600 per employee per year for basic payroll processing
- Payroll tax filing (quarterly 941s, annual 940, W-2 production): additional administrative overhead
- State registrations: one-time costs of $50 to $200 per state
For international companies making their first US hire, the operational overhead of US payroll administration is a real cost. An EOR removes this entirely by handling payroll, tax filings, and all state registrations within the service fee.
The Complete Cost Model
Here is the full cost model for three salary levels, using 2025/2026 verified figures. Employer FICA from IRS, health insurance from KFF 2025 survey, 401(k) from Fidelity data. SUTA is estimated at $400 as a mid-range across major states.
First US hire at $70,000 salary:
Cost item | Annual cost |
Base salary | $70,000 |
Employer FICA (7.65%) | $5,355 |
FUTA (effective 0.6% on $7,000) | $42 |
SUTA (estimated) | ~$400 |
Health insurance (single, employer share) | $7,957 |
401(k) match (3% of salary) | $2,100 |
Workers’ comp (office, $0.35/$100) | $245 |
Dental and vision | ~$500 |
Basic life and disability | ~$400 |
Total estimated employer cost | ~$86,999 |
Uplift on base salary | ~24% |
First US hire at $100,000 salary:
Cost item | Annual cost |
Base salary | $100,000 |
Employer FICA (7.65%) | $7,650 |
FUTA (effective 0.6% on $7,000) | $42 |
SUTA (estimated) | ~$400 |
Health insurance (single, employer share) | $7,957 |
401(k) match (3% of salary) | $3,000 |
Workers’ comp (office, $0.35/$100) | $350 |
Dental and vision | ~$500 |
Basic life and disability | ~$500 |
Total estimated employer cost | ~$120,399 |
Uplift on base salary | ~20% |
First US hire at $150,000 salary:
Cost item | Annual cost |
Base salary | $150,000 |
Employer FICA (7.65%) | $11,475 |
FUTA (effective 0.6% on $7,000) | $42 |
SUTA (estimated) | ~$400 |
Health insurance (single, employer share) | $7,957 |
401(k) match (3% of salary) | $4,500 |
Workers’ comp (office, $0.35/$100) | $525 |
Dental and vision | ~$500 |
Basic life and disability | ~$600 |
Total estimated employer cost | ~$175,999 |
Uplift on base salary | ~17% |
Notice that the percentage uplift decreases at higher salary levels. This is because health insurance is a fixed cost per employee regardless of salary, so it represents a larger percentage burden for lower-paid hires. At $70,000, health insurance alone adds approximately 11% on top of salary. At $150,000, the same health insurance cost represents only 5%.
The Lines Most Companies Miss
Based on working with UK and European companies through their first US hires every week, here are the cost items that are most commonly left out of first-draft budgets.
SUTA. State unemployment insurance is almost always missing from the first model. It is modest per employee but real, and it requires separate state registration in every state where you have employees.
Family health insurance. Companies that budget single coverage and then hire someone who takes family coverage see a significant budget variance. The average employer cost of family coverage ($20,143) is more than double the cost of single coverage ($7,957). Get clarity on your hire’s likely coverage needs before finalising the budget.
Workers’ compensation in multiple states. If your first two or three US hires are in different states, you need separate workers’ comp policies or coverage in each state, because most states require it. This is not enormously expensive for office roles but it does require procurement and ongoing administration.
Dental and vision. These are small costs individually but they are expected and candidates will ask about them. Not budgeting for them and then having to add them later creates a small but annoying budget variance.
COBRA administration. When a US employee leaves your company, federal law (COBRA) requires you to offer continuation of health insurance coverage at group rates for up to 18 months. You must send a qualifying event notice within 14 days of the employee leaving. Failure to comply carries penalties of up to $110 per day per affected beneficiary. This is an administrative obligation that has no UK equivalent and that most international companies do not budget for.
The cost of getting it wrong. Misclassifying a US employee as an independent contractor to avoid these costs is one of the most common and most expensive mistakes international companies make. Back-tax liability for FICA, penalties for FUTA and SUTA non-payment, and potential claims for back-pay on overtime can easily exceed the costs you were trying to avoid. Our piece on US employee classification explains the risks in detail.
EOR vs Direct Employment: The Cost Comparison
For your first US hire, you have two realistic options: employ directly through your own US entity (or through a professional employer organization if you have an entity), or use an Employer of Record.
Direct employment costs:
- All the costs above
- US entity setup and maintenance: typically $3,000 to $8,000 in first-year legal and filing costs
- Payroll software and administration: $200 to $600 per employee per year
- Health insurance procurement: time and broker fees
- Workers’ comp policy: procurement and administration
EOR costs:
- EOR service fee: typically 10% to 20% of gross salary, or a flat monthly fee per employee of $400 to $1,000
- Health insurance is typically included in the EOR’s group plan arrangement
- Workers’ comp, 401(k) administration, and payroll tax filings all included
For your first one to three US hires before you have an entity in place, an EOR is almost always the more cost-effective choice, even when the service fee seems high. The alternative is paying for entity setup ($3,000 to $8,000+) before you have confirmed the market opportunity, plus all the overhead of running US payroll and benefits from scratch.
Our guides to how employer of record works, EOR implementation timeline, and the EOR vs PEO comparison explain the full picture.
What to Put in the Board Presentation
When you are presenting a US hiring plan to your board or finance committee, these are the numbers you need to defend:
Total employer cost per hire. Use the cost model above based on the salary, state, and coverage level for your specific hire. Present total cost, not just salary.
Year one setup costs. If you are going entity-first, add entity setup costs to year one. If you are going EOR, note the service fee structure clearly.
Benefits competitiveness. Your board will want to know whether your package is competitive for the US market. It is. The KFF 2025 survey gives you the market benchmarks.
State-specific obligations. If your hire is in California or New York, note that additional state-specific compliance costs apply. California has State Disability Insurance (SDI), which from 2025 is levied at 1.3% of all wages with no wage base cap, making it one of the most significant state-level payroll additions for high earners. New York has Paid Family Leave (NY PFL) funded through employee payroll deductions. Both require separate registrations and filing schedules on top of your standard federal and SUTA obligations.
Operational model. Whether you are using an EOR, a PEO, or direct employment, explain who is managing payroll, tax filings, and benefits administration. Boards want to know that US compliance is being handled by people who know what they are doing.
If you are working through this for the first time and want a sanity check on your numbers, or want help building the model for your specific hire, our team at Foothold America does this regularly. We work with finance directors and CFOs at UK and European companies preparing their first US employment business case, and we can give you line-by-line guidance based on your specific role, state, and headcount plan.
Speak to our team. No automated process. A real conversation with people who have built these models hundreds of times.
Frequently Asked Questions: US Employment
Get answers to all your questions and take the first step towards a US business expansion.
Your hiring budget should cover gross wages, employer FICA (7.65%), FUTA ($42 per employee), state unemployment tax, health insurance (around $7,957 annually for single coverage), a 401(k) match, workers' compensation, and dental and vision. For a first employee on $100,000, budget approximately $120,000 in total employer costs.
The average cost of a first US hire runs 20% to 25% above base salary once employer taxes and employee benefits are included. For a small business owner hiring at $100,000, expect total costs around $120,000. At lower salary levels, health insurance makes the uplift higher as a percentage.
The costs of hiring that most business owners miss are state unemployment tax (SUTA), COBRA administration obligations when team members leave, California SDI if hiring in that state, and workers' compensation registration in each state. These rarely appear in early hiring budgets but are real employer obligations in the United States.
To attract top talent and right people without overspending, benchmark against local market rates rather than national averages, offer competitive employee benefits through an EOR's group plans, and be transparent about your company culture and growth potential. Great candidates weigh total compensation. Strong employee benefits and company culture can offset a lower base salary.
Only if you have confirmed demand. For most business owners entering the US, the right time to make your first employee hire is when a specific commercial need is proven. Use an EOR to move quickly without entity setup overhead. Much time and capital is wasted hiring before the market is validated.
Use an Employer of Record rather than setting up an entity immediately. Consider hiring outside high-cost cities where local salary expectations are lower without sacrificing right talent. An EOR gives a small business access to group health rates that would otherwise require a large headcount. This meaningfully reduces your cost of hiring from day one.
Start with gross salary benchmarked to local market rates. Add employer FICA, SUTA, health insurance, 401(k) match, workers' comp, and dental. Factor in EOR or payroll system fees. HR leaders should build in a 10% contingency as employee wages and compliance costs for a new employee regularly exceed early estimates.
The only way to consistently hire right talent at sustainable cost is to look beyond US cluster cities. Austin, Raleigh, and Denver offer strong tech talent at a lower local salary than New York or San Francisco. An EOR handles the payroll system in any state, removing location constraints on your hiring budget.
GET IN TOUCH
Contact Us
Complete the form below, and one of our US expansion experts will get back to you shortly to book a meeting with you. During the call, we will discuss your business requirements, walk you through our services in more detail and answer any questions you might have.
