Why startups underprice headcount
Founders see $95K offer and think '$95K.' Reality is ~$125K all-in. Project budgets built on base salaries always blow up — pad headcount lines by 30–35% for SMB, 40–50% for fully-loaded enterprise (including office space).
Remote employee math is different
Remote saves $5–10K/yr per head on office, but adds equipment, home-office stipends, and travel for team meetings. Net savings ~$3–5K. The big remote win is talent geography arbitrage, not direct cost.
The hidden 1099 trap
Misclassifying a W2 employee as 1099 saves 25–30% on burden — and triggers IRS/DOL audits with back-payroll-tax penalties of 100%+. If you set their hours and supply their tools, they're W2. Don't optimize around the IRS.
FAQ
What's the right overhead allocation?
Typical SMB: 8–12% of payroll. Includes HR, finance, recruiting, mgmt time per direct report. Use 5% for very lean, 15%+ for heavy mgmt structure.
How does this differ from a contractor?
Contractors are ~1.0× base rate (you pay only what you bill). Employees are ~1.30× base + benefits. Contractor seems cheaper but lacks long-term IP, training investment, and predictability.
Should I include equity?
Yes, for total comp comparisons. Use the Black-Scholes value or recent 409a-adjusted value. Cash-flow burden is zero (until exit) but enterprise value cost is real.
How this calculator is built
Independently maintained
Written by Sam Doshi and the RevenueLab editorial team. We don't sell the data feeds this tool is built on.
Sourced from primary data
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Last reviewed
June 2026. We re-check every figure on the platform on a rolling quarterly cycle.
Editorial standards
See our editorial policy and disclaimer. Results are estimates, not advice.