You're turning down work, or your best person is doing a job two levels below their pay, or you're doing the scheduling yourself at 9pm. The hire is obviously needed. Whether it's affordable is a different question, and most owners answer it by looking at the salary and their bank balance.
Both of those numbers are misleading. The real cost of hiring an employee has three layers, and only the first one comes up in the interview. Here's a better way to run it.
Start with what the person actually costs
Wages are roughly three-quarters of what an employee costs you in compensation, and compensation isn't the whole cost. According to the Bureau of Labor Statistics, employer compensation costs for private industry workers averaged $46.60 per hour worked in March 2026: $32.60 in wages and salaries, and $14.01 in benefits, which is 30.1% of the total.
Two things about that average before you lean on it. It runs across all of private industry, and the mix moves with the role: for full-time workers benefits are 31.6% of compensation, while at establishments with fewer than 50 employees the figure is 25.9%. It also carries workers' compensation at well under one percent of compensation, which is nothing like what a roofing, framing, or HVAC classification actually costs.
That benefit figure covers employer payroll taxes, insurance, paid leave, and retirement contributions. It is not optional spending, and it doesn't appear in the number you discussed with the candidate.
There's a conversion trap here worth naming. The BLS wage line excludes paid leave, but the salary you quote a candidate already includes their vacation. Converting a quoted salary means multiplying by about 1.3, not by the 1.43 the headline split implies. So a $65,000 salary is roughly an $85,000 commitment before you've bought anything. Then add the costs that aren't compensation at all:
- Recruiting, whether that's a posting, a referral bonus, or your own time
- Equipment, software seats, phone, vehicle, tools, licensing
- Training time, both theirs and the time of whoever trains them
- Workers' compensation, which varies enormously by classification and matters a great deal in the trades
- Unemployment insurance, at your state's experience rate
- Productivity ramp, which is real and usually longer than the estimate
A reasonable planning number for most roles — your labor burden rate, in the term the trades use — is 1.25 to 1.4 times the wage for the recurring cost, plus a one-time onboarding cost in the first quarter. For a skilled trade with a high workers' comp classification and a truck, it runs higher.
Hiring is a fixed cost with a variable payoff. That asymmetry is the entire problem.
Test one: does the role clear its own cost
For a role that produces revenue, the arithmetic is direct. Take the fully loaded annual cost, then ask what the person must produce to cover it at your gross margin.
If a field technician costs $87,000 loaded and your gross margin is 35%, the role needs to generate about $249,000 in revenue just to break even at the gross line, before contributing anything to overhead or profit. Write that number down and ask honestly whether the work exists.
For a role that doesn't produce revenue directly, an office manager, a scheduler, a biller, the test is different but still concrete. What does it free up, and what is that worth? A biller who lifts a family practice's collection rate by two points on $1.8M in production is worth $36,000 a year in recovered cash before you count the hours returned to the providers. A scheduler who lets a contractor add one more job a week has a number attached to them too. If you can't name the number, you're not ready to make the hire, and that's useful to know before you post it.
Test two: can your cash absorb the ramp
Profitability and affordability are different tests, and businesses fail the second one while passing the first.
Payroll is due every two weeks starting immediately. The revenue the hire produces arrives later, sometimes much later. That gap, multiplied by the length of the ramp, is the real cash requirement of a hire, and it's the number that should be on your forecast before you offer.
Put the loaded cost into your 13-week cash flow forecast starting the week they'd begin, leave the revenue side unchanged for the ramp period, and look at the lowest ending-cash week. If that week goes below your minimum operating balance, the hire is affordable in a spreadsheet and not affordable in reality.
Two things make that gap survivable: a collections process that actually works, and a line of credit arranged before you need it. Both are easier to put in place in a calm month.
The alternatives worth pricing first
- Overtime. Expensive per hour, cheap in commitment. Often the right answer when the demand might be seasonal.
- A contractor. Genuinely flexible, but only where the working relationship supports the classification. Getting this wrong is costly, and it turns on control and independence, not on what the agreement says. Note that starting with payments made in 2026, the reporting threshold for Forms 1099-NEC and 1099-MISC rises from $600 to $2,000, which changes your filing obligations but changes nothing about who is or isn't an employee.
- A part-time or fractional role. Many functions don't need forty hours. Bookkeeping, controller work, HR, and marketing are commonly better as a defined scope than as a headcount.
- Fixing the process instead. Sometimes the bottleneck is a workflow, and a hire just pays someone to keep doing it the slow way.
What to do next
Take the role you're considering, compute the loaded cost at 1.3 times the wage, divide by your gross margin, and look at the revenue number that comes out. Then put the cost into your forecast and find the lowest cash week.
Two numbers, one afternoon. If both clear, hire with some confidence. If either doesn't, you've learned something specific about what has to be true first.
If you want the two tests run against your real numbers rather than round ones, book a free discovery call.