A hire is affordable when your business can carry the full monthly cost of the new person for several months, before their work starts paying for itself, without dipping below the cash cushion you keep for tight weeks. That answer lives in three numbers you already have: what the hire really costs, what your lowest cash point looks like in a normal month, and how long the gap between those two will last.
How much does an employee really cost beyond salary?
The salary is the headline, but it's not the bill. On top of a salary you're paying the employer's share of payroll taxes, which is 7.65% for Social Security and Medicare, plus unemployment insurance, workers' comp, disability, any benefits you offer, the tools and software they'll need, and the time it takes to train them.
A rough rule of thumb many owners use is that an employee costs somewhere around 1.25 to 1.4 times their salary once everything is counted. Treat that as a starting range, not a promise. Here in New York, once you add state unemployment, disability, and workers' comp, I more often see 1.3 to 1.5, so build your own number from your actual costs rather than borrowing mine. As an illustration, a $55,000 hire is realistically a $70,000 to $80,000 commitment once it's all in.
| Amount | |
|---|---|
| Base salary | $55,000 |
| Payroll taxes, insurance, benefits, tools (illustrative, ~1.3–1.5x) | $16,500 – $27,500 |
| All-in annual cost | ~$71,500 – $82,500 |
| All-in monthly cost | ~$6,000 – $6,900 |
Illustration only. Your real number depends on your benefits, your workers' comp class, and current New York rates. Your CPA or payroll provider can give you the exact figures.
The gap nobody budgets for
Here's the part that catches owners: a new hire costs full price from day one and produces at partial speed for months. They're learning your systems, your clients, your way of doing things. That means for a stretch, often three to six months depending on the role and the person, you're paying the whole cost and receiving part of the value. The question isn't whether the hire pays off eventually. It's whether your bank account survives the meantime.
How much cash should I have before hiring?
Take the monthly cost of the hire, all in. Now look at your last six months of bank balances and find your lowest point in a typical month, because every business has a tight stretch, usually when payroll clears before customer payments land. In QuickBooks Online you can pull this from the account balance over time; from your bank's portal, export your daily balances for six months and find the recurring low.
Subtract the hire's full monthly cost from that low point, for each of the next six months, assuming they bring in nothing at first. If that number stays comfortably above the minimum cash cushion you want to keep, you can afford the hire. If it goes negative by month two, you can't yet, and that's not a failure, it's just the timing.
The signals that say wait
You're hiring to fix a process problem that a better system would solve for free. Your revenue is up but it's one big client, not a base. You're already stretching to make payroll some months. Any of those, and I'd suggest you hold off and revisit in a quarter.
The signals that say go
You're turning away work you could profitably take. The tasks you'd hand off are ones that directly produce revenue or free you to produce it. And the math above clears with room to spare.
What if the hire doesn't work out?
Plan for it before it happens rather than hoping it won't. Keep the ramp-up honest so you'll know within the first couple of months whether it's working, protect enough cushion that one wrong hire doesn't threaten payroll for everyone else, and understand your obligations as an employer in New York before you start, since those vary. A hire you can reverse without endangering the business is a very different risk than one you can't.