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
B) 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 A: Approximately $3,500 to $4,200
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 C: No additional costs beyond the $35,000 compensation
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.
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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