Your company has 12 employees and needs to hire 3 additional workers for a 6-month project. You're considering whether to hire employees or independent contractors. The total compensation for each worker will be $35,000 for the 6-month period. If hired as employees, what additional cost should you budget for payroll taxes per worker?
Correct Answer
A) Approximately $2,100 to $2,700
Employer payroll taxes include Social Security (6.2%), Medicare (1.45%), federal unemployment tax (0.6% on first $7,000), and state unemployment tax (varies). On $35,000, this totals approximately $2,100-$2,700 depending on state unemployment rates.
Why This Is the Correct Answer
Option A correctly calculates employer payroll taxes on $35,000 compensation. Employers must pay Social Security tax (6.2%), Medicare tax (1.45%), federal unemployment tax (0.6% on first $7,000), and state unemployment tax (varies by state, typically 0.5-3%). These mandatory employer contributions total approximately 6-7.7% of wages, resulting in $2,100-$2,700 per worker.
Why the Other Options Are Wrong
Option B: Approximately $3,500 to $4,200
This range ($3,500-$4,200) represents approximately 10-12% of the $35,000 compensation, which significantly overestimates employer payroll tax obligations. This might confuse total employment costs with just the employer's tax portion.
Option C: Approximately $5,250 to $6,300
This range ($5,250-$6,300) represents 15-18% of compensation, which is far too high for employer payroll taxes alone. This appears to include both employer and employee portions of payroll taxes combined.
Option D: No additional costs beyond the $35,000 compensation
This is incorrect because employers have mandatory payroll tax obligations beyond the worker's gross compensation. Federal and state laws require employers to contribute matching Social Security and Medicare taxes, plus unemployment taxes.
Memory Technique
Think 'FICA plus FUTA plus SUTA' - employer pays about 7-8% total in payroll taxes, roughly 1/4 of what the employee receives as take-home pay after all deductions
Reference Hint
Florida Construction Industry Licensing Board Study Guide - Chapter on Employment Law and Payroll Requirements, or IRS Publication 15 (Circular E) for current tax rates
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