What Payroll Really Costs a Small Business in 2026

Payroll costs a US small business its gross wages plus at least 7.65% in employer Social Security and Medicare tax, plus federal and state unemployment tax, plus whatever it spends on benefits, plus a payroll service fee. For a $50,000 employee, the federal taxes alone add $3,825 a year, and family health coverage can add far more. The software is the smallest piece: published plans cost $95 to $120 a month for a 10-person team. This guide adds up each layer with sourced figures so you can budget for the full bill, not just the salary line.

The full cost of one employee, line by line

Here is what sits on top of a $50,000 salary for a single employee in 2026, using federal rates from the IRS:

Cost line	Rate or price	Annual cost
Gross wages		$50,000
Employer Social Security tax	6.2% of wages up to $184,500	$3,100
Employer Medicare tax	1.45% of all wages	$725
Federal unemployment (FUTA)	6.0% of first $7,000, 0.6% after the full state credit	$42 to $420
State unemployment tax	Set by each state	Varies
Payroll software, per-person fee	$6 to $7 a month	$72 to $84
Benefits	Your plan choices	See below

The tax rates come from our payroll cost statistics. FUTA is 6.0% on the first $7,000 paid to each employee, but the IRS explains that employers who pay state unemployment tax can usually take a credit of up to 5.4%, which brings the federal rate down to 0.6%, or $42 per employee per year.

Before benefits, then, a $50,000 employee costs roughly $53,900 to $54,300 in wages, federal taxes and software fees, plus state unemployment tax.

Employer payroll taxes

Federal payroll taxes are fixed percentages, so they scale directly with pay.

• Social Security: 6.2% of each employee's wages, matching the 6.2% withheld from the employee. It applies to the first $184,500 of earnings in 2026, rising to $192,300 in 2027. At the 2027 cap, the employer share reaches $11,922.60 for the year.
• Medicare: 1.45% of all wages with no cap. The extra 0.9% Additional Medicare Tax on wages above $200,000 is withheld from the employee with no employer match.
• FUTA: 6.0% on the first $7,000, reduced by the state credit as above.

Late deposits are expensive. The IRS failure to deposit penalty reaches 10% of the unpaid deposit once it is more than 15 calendar days late (payroll cost statistics). On a $10,000 deposit, that is $1,000. Avoiding that kind of mistake is a large part of what a payroll service is for.

Benefits: the line that grows fastest

The Bureau of Labor Statistics measures what employers actually spend per hour worked. In June 2026, US private industry employers paid an average of $46.89 per hour worked in total compensation, and benefits made up 30.0% of that, or $14.07 an hour (payroll cost statistics). Wages and salaries were the remaining $32.82. Put another way, for every dollar of private sector wages, employers spent about 43 cents more on benefits.

Some of the components:

• Paid leave cost private employers $4.40 per hour worked for full-time staff, 8.1% of total compensation.
• Full-time vs part-time: a full-time private industry worker cost $54.00 per hour worked, against $25.20 for a part-time worker, whose benefits were 20.0% of the total.

Health coverage is usually the largest single benefit. KFF puts average annual premiums for employer-sponsored family coverage at $28,303 in 2026, up 5% from 2025, with workers paying an average of $7,471 of that (payroll cost statistics). The difference, about $20,832, is the average employer share. Small firms tend to push more onto staff: covered workers at firms with fewer than 200 employees paid an average of $9,687 toward family coverage, $2,847 more than at large firms.

The trend is upward. Benefit costs for civilian workers rose 3.9% in the year to September 2026, faster than wages at 3.1%, and employers surveyed by Mercer expect health benefit cost per employee to rise 8.2% in 2027, the largest increase since 2003 (payroll cost statistics).

What payroll software costs

Full-service payroll is priced as a monthly base fee plus a fee per person paid. Monthly cost at different team sizes, from the published prices on our payroll software ranking:

Service	Pricing	1 person	5 people	10 people	25 people
Square Payroll	$35 + $6 per person	$41	$65	$95	$185
SurePayroll	$29 + $7 per worker	$36	$64	$99	$204
Wave Payroll	$40 + $6 per person	$46	$70	$100	$190
OnPay	$49 + $6 per worker	$55	$79	$109	$199
Gusto Simple	$49 + $6 per person	$55	$79	$109	$199
QuickBooks Payroll Workforce	$50 + $7 per employee	$57	$85	$120	$225

SurePayroll's lower base fee wins for the smallest teams, but its $7 per-worker fee catches up: it ties Square Payroll at 6 people and costs more from 7 up. Rippling starts at $8 per employee plus an unpublished base fee, and ADP and Paychex quote every package individually.

For a 10-person team, $95 to $120 a month is $1,140 to $1,440 a year. If those ten people earn $50,000 each, that is under 0.3% of the $500,000 wage bill, and about 3 to 4% of the $38,250 the business pays in employer Social Security and Medicare tax.

Fees that do not show up in the headline price

The base and per-person fees are not the whole software bill. From the vendor pages behind our ranking:

• Year-end forms: SurePayroll bills W-2 and 1099 forms at a $50 base fee plus $5 per form. For 10 employees, that is $100 a year. Square Payroll charges $3 per form for optional paper mailing.
• Multi-state payroll: SurePayroll adds $9.99 a month. Gusto Simple covers one state only, and multi-state starts on Plus at $80 a month plus $12 per person, which is $200 a month for 10 people instead of $109.
• Add-ons: OnPay's time tracking and HR compliance tools, and Square Payroll's health insurance and 401(k), are add-ons. QuickBooks puts time tracking on Workforce Premium at $88 plus $13 per employee.
• Promotions that expire: QuickBooks offers 50% off for 3 months, ADP advertises up to 6 months free, OnPay a month free and SurePayroll free alternate months in the first year. Compare the ongoing price.

Putting it together: a 10-person team

Here is an illustrative annual budget for ten employees each paid $50,000, in one state, using the figures above:

Line	Annual cost
Wages	$500,000
Employer Social Security and Medicare (7.65%)	$38,250
FUTA after full state credit (0.6% of $7,000 each)	$420
Payroll software, $95 to $120 a month	$1,140 to $1,440
State unemployment tax	Varies by state
Benefits	Depends on your plan

Before state tax and benefits, payroll costs about $539,800 to $540,100, or 8% more than wages. Add family health coverage at the average employer share for even a few employees, and benefits quickly become the second-largest line after pay.

How to keep payroll costs in check

• Price software at next year's headcount. Per-person fees decide the bill as you grow.
• Pick the plan for the states you actually employ in. Multi-state upgrades can nearly double a software bill.
• Never pay deposits late. A 10% penalty on a missed deposit can exceed a year of software fees.
• Review benefit plan design every renewal. Among firms with 200 or more workers, 44% raised the share of premiums workers pay to offset higher health costs in 2026, a sign of how hard the cost pressure is.
• Get published quotes before calling ADP or Paychex, so you have a benchmark when you negotiate.

FAQ

How much does payroll cost per employee for a small business?

Beyond wages, the federal minimum is 7.65% for Social Security and Medicare plus $42 to $420 in FUTA per employee, plus state unemployment tax. Payroll software adds $6 to $7 per person a month on top of a base fee of $29 to $50. Benefits come on top and, across private industry, averaged 30.0% of total compensation in June 2026.

What is the cheapest payroll software for a small business?

On published prices, SurePayroll is cheapest for 5 or fewer people at $29 a month plus $7 per worker, and Square Payroll at $35 plus $6 per person is cheapest from 7 people up. Check year-end form fees and multi-state charges before deciding.

Is payroll software worth it for a business with one or two employees?

Usually. At $36 to $57 a month for one person on the plans above, the fee is small next to the 10% IRS penalty for payroll tax deposits more than 15 days late, and the service handles tax filings for you.

How fast are payroll costs rising?

US compensation costs rose 3.4% in the 12 months to September 2026, with benefits up 3.9% and wages up 3.1%. Employers expect health benefit costs per employee to rise 8.2% in 2027, according to Mercer.