When most people think of New York, they think of New York City. So it’s easy to forget that the state has nearly 20 million people, and is home to over two million small businesses, which employ over four million people.
That means lots of business owners hiring lots of people every year.
And when you’re a business owner, bringing on a new employee might be one of the biggest (and scariest!) decisions you make. Beyond the skills stuff, you also have to find out if you can actually afford this person. On top of your employee’s salary, you’re also in charge of paying New York State payroll taxes.
So how much does it really cost to hire an employee? Here’s a handy infographic to help you visualize the estimated cost of hiring a new employee in New York State:
It’s important to remember that there’s more than just the price of your employee’s salary or wages to consider. There’s also the cost to recruit, train, and provide benefits that you need to take into account. For now, let’s focus on the bare minimum: your new employee’s wages or salary and the associated taxes that you have to pay as a small business owner.
Let’s expand on each of these so you can get an idea if any of the scenarios are similar to your New York-based business:
- Leo: Leo is a pilates instructor in Manhattan and earns $25 an hour. He usually works around 10 hours a week. His employer pays a smaller amount of wages, $13,000; however, the taxes of $1,436.11 make up a more significant portion of the total cost to hire than the other examples. Ultimately, the wages make up about 90 percent of the total cost to hire, while the taxes make up about 10 percent.
- Sienna: Sienna is a Buffalo-based graphic designer who earns $65,000 a year. Her salary makes up 92.3 percent of the total cost to hire, while the taxes represent about 7.7 percent of the total.
- Marisol: Marisol works at a boutique law firm in White Plains. She earns $250,000 a year. Her salary makes up around 95.4 percent of her total cost to hire, while taxes are around 4.6 percent of the total.
Right away, you’ll probably notice that as the salary or wages goes up, it becomes the primary driver of the total cost to hire. This happens because most of the taxes have relatively low “ceilings” or maximums.
As of February 2019, the Federal Unemployment Tax Act (FUTA) and New York State Unemployment Tax Act (SUTA) are only applied to the first $7,000 and $11,100 of an employee’s wages, respectively. That means employers will pay the same for each employee earning more than those amounts.
The Social Security and Medicare taxes are far more significant. Employers are responsible for 6.2 percent on the first $132,900 of an employee’s wages, a maximum of $8,239.80. Medicare has no ceiling at all. Employers pay 1.45 percent on all of an employee’s wages.
The main taxes employers have to pay in New York.
Just in case you’re not familiar with all the taxes that employers are on the hook for, here’s a quick look at how the payroll tax rates for New York employers break down as of February 2019. Remember that these numbers change, so always check with a tax professional to get the most up-to-date amounts.
- Social Security: Social Security is a federal insurance program that provides benefits to retired employees and the disabled. Employers must pay 6.2 percent of taxable wages on the first $132,900.
- Medicare: Medicare is a federal system of health insurance for people over 65 and younger people with disabilities. Employers must pay 1.45 percent on all taxable wages.
- Federal Unemployment: The Department of Labor oversees state programs that provide unemployment benefits to workers who become unemployed and meet eligibility requirements. FUTA is 6 percent on the first $7,000 of an employee’s wages. However, most New York employers are expected to pay 0.6 percent in 2019 because they most likely pay state unemployment too, earning a 5.4 percent credit against their FUTA.
- New York State Unemployment Insurance: A state-sponsored insurance program, New York provides benefits to unemployed workers, the disabled, and those on paid family leave. New York SUTA is 0.825-8.225 percent on the first $11,400 of an employee’s wages. This rate is given to you by the state and can be influenced by how long you’ve been in business, the number of employees you have, the amount of unemployment benefits that have been charged to your account, as well as other factors. Because it varies for each business, we’ve used the standard rate assigned to new employers in our calculations above.
- New York Reemployment: This is 0.075 percent on the first $11,400 of an employee’s wages.
- New York Metropolitan Commuter Transportation Mobility Tax (MCTMT): This tax applies to employers that conduct business in New York, Bronx, Kings, Queens, Richmond, Rockland, Nassau, Suffolk, Orange, Dutchess, and Westchester counties—and whose payroll expenses are over $312,500 per calendar quarter. The tax rates are 0.11 percent, 0.23 percent, and 0.34 percent, depending on the amount of payroll expenses paid each quarter.
- New York Disability Benefits: Disability benefits need to be purchased by employer when they’ve met the criteria. A payroll deduction of up to 60 cents per week may be deducted from an employee’s paycheck to help pay for this insurance.
Other factors that go into the final cost.
There’s more you may have to pay beyond your employee’s salary and wages and employer taxes. There are also costs that go into recruiting a new employee, like job postings, along with other parts of your compensation package, like health insurance, 401(k) matching, and other benefits.
In a state like New York, where competition for talent is especially fierce, lots of factors have to be considered while calculating the total cost of a new employee. But hopefully this breakdown gives you a solid place to start as you build your dream team.
This article contains general information but is not intended to be construed as tax advice. Each business and situation is different, so please consult with a tax professional to help you make the right choices for your company.