There is always that point in a relationship with a client who uses us for temporary staffing when they comment about the difference between our hourly bill rate compared to what they believe they pay for one of their core employees doing the same or similar work. Why does my “‘temp” cost so much more than what I pay for an employee I hire directly?   

We love this question because it brings up such an important topic – what it actually costs to be an employer in Washington State. And the answer is yes, Washington leads the nation it what it costs to be an employer when you do a side by side comparison of pay, payroll tax structures and benefit mandates. So while our bill rate to a client for their temporary employee is a very visible number on our invoice, the costs an employer actually pays for someone they’ve hired direct is not always visible.

This blog is written to outline these employer costs – a topic we have been blogging on since 2014 when we started to realize that a lot of hiring managers simply didn’t have a good understanding what it was costing them to be an employer. This blog is an updated version of previous blogs that outlined those costs. In 2025, the costs of being an employer are a lot higher than what they were in 2014 – more than a decade of mandatory benefits and regulatory costs later.

The Employee’s Pay Rate

By far the biggest component of what it costs to be an employer is what you agree to pay your employee  – typically a rate per hour, per week, or on an annual basis, prorated back into the rate per hour which is generally the pay model recognized by most payroll systems.

Historically pay rates are determined by the marketplace – what other employers competing for the same employees are offering to pay similarly skilled employees. As a general rule, the more skills and work experience you require of a candidate, the more you need to pay them to encourage them to accept your job offer.

What has happened since 2014 is that market based pay requirements have been dramatically escalated based on changes in Washington State’s mandated minimum pay rate. In 2014, that minimum hourly pay rate was $9.32. In 2025, the minimum hourly pay rate for Washington state is $16.66/hour, for Seattle employers 20.76, and for Tukwila employers ranging from $20.10 to $21.20 depending on your size. These are hourly pay rates that lead the nation – only Washington DC has a higher minimum pay rate than Washington state at $17.95/hr.

These increases in mandated rates per hour have trickled down into across the board pay increases for all employees, not just the entry level beginners.

Payroll Taxes – the add on costs you pay to state and federal tax agencies

There are a variety of taxes that have to be paid to state and federal payroll taxing agencies that have jurisdiction over your relationship with your employee and your payroll processes. All employers pay these same taxes.

• FICA is the federal tax paid by both employees and employers for Social Security and Medicare benefits. In 2025, the social security tax is 6.2% of wages up to $176,100. The Medicare tax is 1.45% of all wages.
• The SUTA tax includes monies paid into the State of Washington to provide unemployment and social welfare benefits. The rate varies depending on the payors experience rating, but generally runs between 2-6% of the employee’s wages up to $72,800. Washington state SUTA taxes per employee are the highest in the nation.
• The FUTA tax is the federal version of SUTA and is used to fund state workforce agencies. In WA, that tax ends up being 6% of the employee’s first $7000 in earnings, OR $420 per employee per year.
• Workers Compensation Insurance. In Washington, employers are required to contribute to a state wide fund to cover the costs of any injury treatment and/or lost wages caused by a workplace injury or accident. Washington employers contribute to this fund based on the employee’s job category and their experience rating with workplace accidents. For low risk jobs it can be as little as $.10-.15 /hr. For high risk jobs the state insurance tax can be $5-6/hour.

Mandated Local and State Paid Time-Off and Long Term Care Benefits

For all Washington employers, the costs incurred to fund mandated paid time off benefits has been increasing substantially since 2018 when the required paid sick time requirements went into effect with additional benefit obligations kicking in after that date.

• All employers are now required to provide their employees with 1 hour of paid time off for any health related issue for every 40 hours worked. This totals to 52 hours a year, or just under 6.5 days a year. This adds approximately 3% to the costs associated with mandated benefits to all Washington employers. The costs to employers who offer more paid time off to make their benefit packages competitive, pay considerably more.
• In 2020, the new Family and Medical leave provisions went into effect that provides employees with 12-16 weeks of paid time off for certain medical issues and/or the arrival of a new child.  These are benefit costs split between employees and employers with the employer paying .26% of the employee’s wages into the FMLA fund. Employers are also required to administer this benefit by withholding and remitting the employee’s portion to WSES.

Mandated Healthcare Benefits   

The Affordable Care Act mandates that all employers provide either comprehensive health insurance for their full time employees or pay penalties. While not all part time or temporary employees are eligible for this benefit, if the employee is full time and enrolls in your company’s healthcare plan, costs will generally be between $6000 – $7500/year per enrollee, or $2.50 – $3.60/hr. depending on your specific plan.

Compliance

The costs associated with a typical compliance profile (including a  background check and drug screen) can range between $35 to $250 per employee. If vaccinations and immunizations are required, as in most healthcare environments involving patient contact, costs can be significantly higher. If you require comprehensive educational or reference checking the costs go even higher.

NOTE: Since the employees referred to your must meet your “fit for duty” compliance requirements, the costs associated with getting an employee compliant are born by the agency and built into their bill rate. The typical add-on charge can be anywhere from $.10 to $.50/hr depending on the required costs and the length of the assignment. This is one of the reasons why short term (1-4 weeks) temporary assignments are almost non existent in today’s marketplace. By the time an employee gets thru the compliance hurdles, the need for their services is significantly reduced.

Enhanced Benefit and Paid Time Off Costs 

Although all of the above costs are mandatory, in reality most employers offer their employees other types of benefits that add additional costs per hour. For example….

• Most employers offer paid time off in excess of the benefits mandated by the State of Washington. If, for example, you offered 2 weeks of vacation in addition to 6 sick days of sick pay, your costs per hour increase by 3.8% of the employee’s pay rate.
• If you provide 10 paid holidays your costs increase by another 3.8%.
• A 401K matching plan or other retirement programs often adds 2-5% of the employee’s pay to their direct costs.

Direct Costs

In our world we consider all of the costs related to pay, mandatory and voluntary benefit etc. DIRECT COSTS because they are directly related to the costs of being an employer. Once your benefit policies are in place, your DIRECT COSTS as an employer are essentially not negotiable. When PACE becomes the Employer of Record which we do when providing our clients with a temporary employee, we pay the same DIRECT COSTS as our client’s do.

Other Employer Related Administrative and Overhead Costs  

To get a realistic sense of what it costs you to be an employer, you have to factor in all the costs of hiring an employee, onboarding them, paying them, and managing their benefit eligibility.  These costs include…

• Employee Recruiting and Selection Costs – According to the Society of Human Resource Managers, the internal costs required to support the sourcing, recruiting and hiring of an employee is somewhere between $3500 and $10K – and that doesn’t include agency fees. These hiring costs, converted into an hourly rate prorated on an annual basis, can add another $2-5/hr to an employee’s costs per hour – more if you make a hiring mistake and you have to prorate the total costs over a shorter life span.
• Administrative Costs – include the costs of paying the employee and administering their benefits. We estimate these costs to be about 1% of the employee’s pay rate.
• Unforeseen Legal Liabilities – are the costs that accompany every employer-employee relationship and are the unforeseen costs that can be incurred if an employee is injured, files a claim for unemployment or worse yet, a claim for discrimination or workplace harassment. A cost of 1.5% of the employee’s base pay is the typical percentage attached to cover these unforeseen liabilities.

Adding Up all These Costs – the Big Picture!    

Here’s how all these costs add up on a per hour basis….  

These types of “real costs” analysis are helpful when working with a client on establishing their overarching staffing strategies – what percent of my total work group should be considered temporary or flexible employees, and what percentage should be in core roles? With the costs of each somewhat comparable, the remaining benefit of a temporary solution is its flexibility. A temporary employee only accrues costs when they are working while the costs of an employee hired direct are incurred whether or not the employee is at work.