The Average Small-Business Wage Is $27.68 an Hour. The Average Small-Business Employee Costs $37.36.

The gap is not a benefits package. At a business with fewer than 50 people, the single largest add-on is the one item you never chose, never negotiated and never renewed.

The number you negotiated is not the number you pay

When you decide you can afford someone at $27 an hour, you are almost certainly picturing $27 an hour leaving the account. Then the first quarter closes and the arithmetic does not work, and the usual conclusion is that the person is underperforming or that costs have crept. Neither is necessarily true. The number was wrong at the start.

The Bureau of Labor Statistics measures this directly, every quarter, and reports it per hour worked. In the March 2026 release, private-industry establishments with fewer than 50 employees paid an average of $27.68 in wages and salaries and $37.36 in total compensation. That is a gap of $9.68 an hour that never appears in the offer letter.

Divide one by the other and you get the only number you actually need to carry around: 37.36 ÷ 27.68 = 1.35. At a business your size, every dollar of wage is about a dollar thirty-five of cost. A $60,000 salary is roughly an $81,000 line item. A $27-an-hour hire is a $36-an-hour hire. Not approximately, not in a bad year — on average, according to the agency that counts it.

You did not misjudge the person. You budgeted three quarters of the hire and then wondered why it did not fit.

The largest add-on is the one you never agreed to

Ask most owners to name the expensive part of employing someone and they will say health insurance. It is the one with a renewal date, a broker and an annual argument, so it occupies the most attention. It is not the biggest line.

At establishments with 1–49 workers, legally required benefits cost $2.95 per hour worked — payroll taxes, workers’ compensation and unemployment insurance. Paid leave costs $2.34. All insurance, health included, costs $2.31. Retirement and savings costs $0.87. The largest single benefit cost a small employer carries is the one category that involves no decision at all.

This matters for planning, not for complaining. The four discretionary lines are levers — you choose the plan, the match, the leave policy, the bonus structure. The largest line is not a lever. It scales automatically with headcount and wages, it arrives whether the year was good or bad, and no amount of shopping around moves it. If your hiring model assumes you can trim your way out of a bad quarter, check which lines you were planning to trim.

Small employers pay less per hour — and less of it is optional

The size comparison is where this gets uncomfortable. Total hourly compensation runs $37.36 at 1–49 workers, $40.07 at 50–99, $47.78 at 100–499 and $68.03 at 500 or more. On the surface that reads like an advantage: the small business spends far less per hour.

Look at the composition instead of the total. At 500+ employers, benefits are 35.2% of compensation; at 1–49 they are 25.9%. The large employer is spending that difference on retirement matches, richer insurance and paid leave — recruitable, negotiable, discretionary things. Meanwhile legally required cost is 7.9% of total compensation at the small employer versus 6.5% at the large one. The unavoidable portion falls harder on the business with the least room, and the avoidable portion is what the competition is using to hire your candidate.

What to do with the 1.35

Put the multiplier into the decision before you make it, not into the review afterward. When you are working out whether a hire pays for itself, run the loaded number: take the wage you intend to offer, multiply by 1.35, and ask what that person has to produce to clear it. At a $60,000 salary you are asking for roughly $81,000 of contribution before the hire is neutral. That is a materially different conversation from the one built on $60,000, and it is the conversation you will end up having anyway — just later, with worse information.

Then check the number against your own books rather than the national average. Your workers’ compensation rate depends on your state and your class code; your unemployment rate depends on your claims history. The 1.35 is the average across US private industry at your size, which makes it a good planning default and a poor substitute for your own payroll register. Pull one quarter, divide total employer cost by total gross wages, and you will have your own multiplier in about twenty minutes.

The point of all this is not that employees are expensive. It is that the cost was always there and the budget was not. Owners who run the loaded number hire more confidently, because they are no longer discovering a quarter of the cost after the fact — and they stop blaming good people for arithmetic that was wrong before anyone was hired.

Published by The Lonely Entrepreneur — the community and coaching platform for entrepreneurs who are building alone. lonelyentrepreneur.com

This article is for educational purposes and is not a substitute for professional financial or legal advice.