The true cost of hiring a startup engineer
Salary is barely half of it. A line-by-line model of what a full-time engineer costs a startup in year one: taxes, benefits, recruiting, ramp time, and the miss risk.
Ask a founder what an engineer costs and they’ll quote you a salary. Ask their accountant and you’ll get a bigger number. Ask whoever ran the hiring process, waited out the ramp-up, and once made a bad hire, and you’ll get the real one.
This post builds the real number line by line. The point isn’t that hiring is bad. Hiring is how durable companies get built, and we say that as a company that sells the alternative. The point is that you should compare options using true costs, not sticker prices, because the gap between the two changes decisions.
The model and its assumptions
One senior full-stack engineer, US-based, at a seed-stage startup. We’ll use a $170,000 base salary. If your market says $140k or $210k, run the same lines with your number; the ratios hold up better than the absolutes.
Every line below is a knob you can turn. We’ll flag the soft ones.
Year-one cash, line by line
| Line item | Amount | Notes |
|---|---|---|
| Base salary | $170,000 | The number everyone quotes |
| Employer payroll taxes | ~$13,000 | Social Security, Medicare, unemployment; roughly 7.65% plus state |
| Health insurance + benefits | ~$18,000 | Employer share for decent coverage; higher with dependents |
| Equipment + software seats | ~$5,000 | Laptop, monitors, licenses, the SaaS pile |
| Recruiting | ~$30,000 | A contingency recruiter at 18 to 20% of base. Soft line: see below |
| Year-one cash | ~$236,000 | Before equity, before office, before anything fun |
That’s about 1.39× base, which matches the folk rule that an employee costs 1.25× to 1.4× salary. Monthly, it’s roughly $19,700 in year one and about $17,200 in later years once recruiting drops off.
The recruiting line deserves its asterisk. If a great engineer comes from your network, it’s $0 and you should feel lucky. If you run the search yourself instead, you don’t write a recruiter check; you spend 60 to 100 founder-hours on sourcing, screening, and interviews, and founder-hours are the most expensive hours your company has. Either way the line is real. Pick whose budget it comes out of.
Equity is deliberately left out of the table because it resists honest pricing. A senior early hire typically gets somewhere between 0.25% and 1%. Whatever your company is worth in your own head, multiply and add it mentally. At any valuation you believe, it isn’t zero.
The part the spreadsheet misses: paid days vs. productive days
You pay for every calendar day. You don’t get product work out of every calendar day.
Start with ~260 working days. Subtract holidays and PTO (call it 25), sick days, and the standing tax of all-hands, 1:1s, interviews for the next hire, and planning. Most teams land somewhere near 200 days of heads-down build time per engineer per year, and that’s a healthy team.
Then there’s ramp. A new engineer in an existing codebase takes two to three months to reach full speed. Not because they’re slow; because context has to be acquired one confusion at a time. Model the first three months at half output and you lose another ~30 effective days in year one.
So year one looks like ~$236,000 of cash for ~170 effective build days: about $1,390 per productive day. In steady state (no recruiting fee, no ramp) it settles around $1,030 per productive day.
That’s the honest per-day price of a full-time senior engineer. Not $654, which is what $170k divided by 260 tells you, and which is the number people accidentally use when eyeballing contractor rates.
The line nobody budgets: the miss
Some hires don’t work out. Industry surveys have put bad-hire rates anywhere from one in ten to one in four; you don’t need precision to see the shape. Say one in five senior hires misses, and a miss takes four months to recognize and unwind.
Four months of fully loaded cost is about $79,000, plus a restarted search, plus the roadmap hole where that person’s output was supposed to be. Spread across five hires, the expected cost of misses adds roughly $16,000 to each successful one. You can argue the inputs. You can’t argue it to zero, and it never appears in the offer-letter math.
This, more than the day-rate arithmetic, is why trial-first arrangements exist. A week that proves fit before a long commitment is cheap insurance against the most expensive line in the table. It’s how we designed our first-week booking, and it’s worth demanding a version of it from anyone you engage, including employees, in the form of a real work-sample stage.
So when does hiring win anyway?
Frequently. The math above prices an engineer; it doesn’t price what only employees do.
An employee compounds. The codebase context that costs three months to build is an asset that keeps paying out in year two, and it walks out the door every Friday with a contractor too, but it comes back Monday for years with a hire. Employees hold institutional knowledge, mentor the next hires, and care about the company in a way that a day rate doesn’t buy. If the work is daily and permanent, hire, and the true cost is simply the fair price of that.
The fully loaded math argues against hiring in one specific situation: when the work is variable. If you need a senior engineer three weeks out of four, you’re paying ~$19,700 a month for ~$14,800 of used capacity, and the effective day rate on the days you use climbs accordingly. At that point comparing $1,030-per-productive-day employment against booking the days directly (our full-stack rate starts at $350/day, full list here) is just arithmetic, and the arithmetic swings on your utilization.
Two companion pieces if you’re mid-decision: when to hire your first full-time engineer walks the timing question, and burn rate math shows what each structure does to runway, which for a pre-revenue company is usually the number that decides.
The worksheet version
For your own market and numbers:
- Base salary × 1.09 for employer taxes.
- Plus benefits (get a real quote; $1,200 to $2,000 a month is common).
- Plus $5k gear, plus recruiting (fee, or your hours priced honestly).
- Divide by your realistic productive days. Start at 200 and be suspicious of anything higher.
- Discount year one for ramp. Add your own estimate for miss risk.
- Compare that per-day figure against the per-day price of not hiring, at your utilization, not at 100%.
If the hire still wins, hire with confidence. If it doesn’t, you now know what the flexibility is worth, in dollars, for your company specifically. Either way you’ve stopped comparing a salary to a day rate, which was never a fair fight.
