When most people think of New York, they think of New York City. So it’s easy to forget that the state of New York has nearly 20 million people, and is home to 2.2 million small businesses, which employ 4.1 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 finding someone with the right skills and years of experience, 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? As a reference, these are pay ranges for New York State employees, spanning job titles for public employees and public authorities as well as other positions—posts that include everything from State University of New York (SUNY) professors to Port Authority of New York and New Jersey officers. For the private sector, salary ranges are widely available through different websites catered to job seekers and employers, such as Glassdoor, which publishes minimum and maximum base pay for a large number of corporate roles. But it’s important to remember that there’s more than just the price of your employee’s salary or wages to consider. There is 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 with an hourly rate, and earns $25 an hour. He usually works around 10 hours a week. His employer pays $13,000 in wages; however, the taxes make up a more significant portion of the $14,549.01 in total cost to hire than the other examples. Ultimately, the average salary makes up about 89.4 percent of the total cost to hire, while the $1,549.01 in taxes make up around 10.6 percent.
- Sienna: Sienna is a Buffalo-based graphic designer who earns $65,000 a year. Her salary makes up 92.2 percent of the total cost to hire that equals $70,527.01, while the $5,527.01 in taxes represent about 7.8 percent of the total.
- Marisol: Marisol works at a boutique law firm in White Plains. She earns $250,000 a year. Her base salary makes up around 94.5 percent of her total cost to hire that amounts to $264,632.71, while the $14,632.71 in taxes are around 5.5 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.
The Federal Unemployment Tax Act (FUTA) and New York State Unemployment Tax Act (SUTA) are only applied to the first $7,000 and $12,500 of an employee’s wages, respectively. That means employers will pay the same for each employee earning more than those amounts.
Contrast that with the Social Security and Medicare taxes, which are far greater. For Social Security, employers are responsible for 6.2 percent of the first $168,600 of an employee’s wages, a maximum of $10,453.20. Medicare has no ceiling at all. Employers pay 1.45 percent on all of an employee’s wages, up to $200,000 for single taxpayers and $250,000 for married folks filing jointly (or $125,000 each for those who are married, filing separately).
Anyone earning more than those thresholds will pay an additional 0.9 percent Medicare tax on the income that exceeds the thresholds. Employers will withhold that amount beyond $200,000 in wages, but the entire amount comes out of the employee’s wages and employers do not pay any part of it, which is why it wasn’t included in the applicable above scenario when calculating total cost to hire.
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 currently break down. Remember that these numbers change, so always check with a tax professional to get the most up-to-date amounts:
- Social Security is a federal insurance program that benefits retired employees and the disabled. Employers must pay 6.2 percent of taxable wages on the first $168,600, which is the maximum wage that can be taxed for earnings in 2024. In some places, you might see this referred to as “FICA” or the “Federal Insurance Contributions Act,” which refers to the combination of Social Security taxes and 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 because of an incident out of their control (like a location closing) and meet certain other 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 because they pay state unemployment, too, which earns them 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 2.025 – 9.825 percent on the first $12,500 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 (i.e., 4.025 percent) in our calculations.
- New York Re-employment Service Fund (RSF): This is 0.075 percent on the first $12,500 of an employee’s wages.
- New York Metropolitan Commuter Transportation Mobility Tax (MCTMT): This tax applies to employers whose payroll expenses are over $312,500 per calendar quarter and conduct business in or near the NYC metro area for these counties:
- Zone 1 includes New York (Manhattan), Bronx, Kings (Brooklyn), Queens, and Richmond (Staten Island) counties
- Zone 2 includes Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess, and Westchester counties
The tax rates are 0.11 percent, 0.23 percent, and 0.60 percent for Zone 1, and 0.11 percent, 0.23 percent, and 0.34 percent for Zone 2, depending on the amount of payroll expenses paid each calendar quarter.
- New York disability benefits: Disability benefits need to be purchased by the employer according to the coverage requirements. 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
As mentioned earlier, 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 healthcare coverage, 401(k) matching, and other benefits. This article contains general information, but it’s 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.
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, whether you choose to do that in upstate Albany, downstate Long Island, or anywhere else in NY.
Note: This article is part of a Gusto multistate series on how much it costs to hire employees in various states. Take a look at the California and Texas versions to see how New York compares.
