What your first employee actually costs, and the revenue you need to cover them

The wage is about 70% of what that person costs you

Short answer: plan on your first employee costing 25% to 40% more than their wage, every year, before they produce a dollar. That's the standard loaded-cost rule of thumb and it holds up in the real world. A $25/hour hire is a $31-to-$35/hour line item. Then add a ramp period where they're being paid full freight and producing maybe half. And the revenue to cover all of it has to be there before you post the job, not after.

I learned this the expensive way in two businesses. When I owned the bakery, the ovens didn't care how many people walked in. Somebody had to be there at four in the morning whether we sold out or sold nothing. Same with the escape rooms: demand showed up Friday night and Saturday, and payroll showed up all week. Both times the payroll was close to fixed and the revenue swung all over the place. That gap is where owners get hurt.

In Northern Colorado it's worse because of the calendar. A Greeley roofing crew hires in May feeling flush. A Windsor event space staffs up for wedding season. Then January arrives, the phone goes quiet, and that payroll line is still due on the 15th and the 30th. Hiring on a feeling in May means paying for the feeling in January.

Build the loaded number before you build the job post

Take the wage and stack everything legally and practically attached to it. Here's a hypothetical to copy (numbers made up, so replace them with yours):

• Base wage: $25/hour × 2,080 hours = $52,000
• Employer FICA, 7.65% (6.2% Social Security + 1.45% Medicare, per IRS): $3,978
• FUTA: 6.0% on the first $7,000 of wages, with a credit of up to 5.4% if your state unemployment is paid on time, so typically $42 per employee
• Colorado unemployment insurance (SUI): your rate comes on a letter from the Colorado Department of Labor and Employment, and new employers pay more. Budget a few hundred to a couple thousand until you have your actual rate.
• Workers' comp: required in Colorado from the first employee. Priced per $100 of payroll by class code. Office work is cheap; roofing is among the most expensive codes in the country. At a hypothetical $5 per $100, that's $2,600 on $52,000 of payroll. Get a real quote. The spread between class codes is enormous.
• Colorado FAMLI: premiums are set annually by CDLE. Employers with fewer than 10 employees don't owe the employer share, but you still withhold and remit the employee's half. Check the current rate on the state site.
• The stuff nobody counts: phone, software seat, uniforms, hand tools, fuel, a truck if they need one, payroll service, and a few hours a week of your own time managing them.

In that example you're at roughly $61,000 before a single tool or phone, which is about $29/hour against a $25 wage. Add $2,000 of gear and software and you're near $63,000. And then my dad's other rule applies: add 20% for the oopsie fund. Nothing comes in at the number on the first pass.

The three months nobody budgets for

Here's the part that sinks people. You don't get the output you hired on day one. You get it somewhere in month three or four, and you pay full price the whole time.

A fair planning assumption: month one they're maybe 30% productive, month two 60%, month three 80%. On a $63,000 loaded cost, that quarter costs you about $15,750 in pay and delivers roughly $8,800 of work. Call it $7,000 of pure investment. That's tuition for turning a stranger into a producer. Those are illustrative percentages, not a law of physics, but they're closer to the truth than the number in your head right now, which is zero.

So the cash question isn't "can I afford $25 an hour." It's "do I have three months of loaded payroll sitting somewhere while this person learns my business." If the answer is no, you're not hiring an employee. You're taking a loan from your own working capital at a bad time.

The revenue trigger: write it down before you post the job

Stop hiring on the feeling of being busy. Busy is a terrible signal. You're busy at the exact moment you have the least time to think. Set a trigger instead, in writing, and only pull when it's been true for 90 straight days.

The math is two steps.

1. Find your gross margin on the work this person will do. Revenue minus the direct cost of delivering it: materials, subs, direct labor. If a $10,000 job leaves you $5,000 after materials and crew, that's 50%.
2. Divide loaded cost by that margin. $63,000 ÷ 0.50 = $126,000 of additional revenue per year, or about $10,500 a month, just to break even on the hire.

At a 35% margin that same hire needs $180,000 a year, or $15,000 a month. At 60% it needs $105,000. The margin does more work in that equation than the wage does, which is why price is often the better first move.

So your written trigger looks like this: "I will post the job when I have turned away or delayed $10,500/month of qualified work for three consecutive months, and I have $16,000 in the account that isn't spoken for." Track the turned-away work in a notebook. If you can't produce the notebook, you don't have the trigger. You have a mood. Everything above that break-even, once they're ramped, is profit, is profit, is profit.

W-2 or 1099, the one Colorado owners get wrong

I hear it constantly: "I'll just 1099 them for a while and see how it goes." That's not a trial period. That's a bet against two agencies that have already seen this movie.

Colorado's test is tough. Under state law, a worker is presumed to be an employee unless they're free from your control and direction and customarily engaged in an independent trade or business. The IRS runs its own common-law test on behavioral control, financial control, and the relationship. If you set their hours, hand them your tools, train them in your methods, and they work only for you, they're an employee, regardless of what the paperwork says or what they'd prefer.

Getting it wrong means back payroll taxes, penalties and interest, unpaid unemployment premiums, and a workers' comp problem if they get hurt on your site. Is it flammable or is it on fire? Misclassification is the kind of thing that sits quietly as flammable for two years and then goes up all at once. If you genuinely can't tell which side of the line someone is on, the IRS will tell you. That's what Form SS-8 is for. And my triage conversation exists for exactly these "how bad is this really" questions.

Legitimate 1099 work exists. A subcontractor with his own LLC, his own insurance, his own tools, and his own other clients is a contractor. The guy you're teaching to do it your way, in your truck, is not.

If you're not at the trigger yet, here are the other three doors

Don't ask yourself a yes-or-no question on hiring. Give yourself options and pick the one you can stomach today.

• Raise your price. This is the one nobody wants and it's almost always the right first move. On a business doing $300,000 at a 45% margin, a 10% price increase adds $30,000 of gross profit with no new payroll, no comp policy, no ramp. That's half an employee you didn't have to hire. If you lose a couple of the worst customers over it, you also got time back.
• Buy hours, not a person. Part-time, a temp through busy season, or a virtual assistant for the admin that's eating your evenings. Twelve hours a week of the right help often clears more of your plate than a full-timer you don't have work for in February.
• Subcontract the overflow. Thinner margin per job, zero fixed cost. In seasonal trades this is how you say yes in June without crying in January. I'd rather make 20 points on work I subbed out than carry a body through a dead quarter.

And before you add a human, be honest about whether the bottleneck is volume or admin. A lot of owners I sit with in Loveland and Fort Collins don't need a technician. They need the quoting, the follow-ups, and the missed calls handled. That's part of why we built Buddy, and it's why an AI receptionist answers our own line. Tools don't replace a hire. They just make sure the hire is for the right job.

The one-page decision you can fill out tonight

How do you eat an elephant? One bite at a time. Here are the bites. Do them at the kitchen table in under an hour.

1. Write the wage you'd actually have to pay to get someone decent in NoCo. Not what you wish. What the market is paying.
2. Get a real workers' comp quote for your class code. One phone call. The number may change your mind by itself.
3. Add it up: wage + 7.65% FICA + FUTA + your CDLE rate + comp + gear + software + 20% oopsie. That's your loaded cost.
4. Compute your gross margin on the work they'll do. Loaded cost ÷ margin = your annual revenue trigger. Divide by 12.
5. Write the sentence: "I hire when ___ per month has been true for 90 days and I have ___ in reserve." Tape it to the monitor.
6. Start the notebook. Every job you turn down, delay, or do badly because you're stretched, with the date and the dollar amount. That notebook is the only honest evidence you'll ever get.

Ninety days from now you'll either have proof or you'll have relief. Both are wins. If you want a second set of eyes on the margin math before you commit, the free Business Checkup is where I'd start. It takes less time than writing the job post.

Questions I get about this

Todd Schreier has owned a bakery, built escape rooms, rehabbed houses and sold businesses. He runs Schreier Group with his wife Amanda out of Johnstown, Colorado. Call him at (970) 970-8633.