Determining the Real Cost of Hiring a New Employee

Sometimes in the thick of excitement over expanding a new department or filling a new position, it can be easy to lose track of just how much money new hires can cost your company. The truth is, though, the cost of hiring a new employee is significantly more than an employee who is already on-boarded and performing well in their role. You may not reach the break even point for a new hire for a year or more.

Cost of Hiring a New Employee Breakdown

Not only is it expensive to bring on a new person; it’s even more expensive to deal with turnover. This decidedly not-simple worksheet shows you the full cost of having an employee leave, including lost productivity, accounting for turnover rate, and more. Of course, if they’ve been there awhile this isn’t such a hit, and it is to be expected that your team members will someday find greener pastures.This means it is very important for you to find the right employees in the first place, because their total cost is high. How high? Here’s a quick breakdown to help you determine the real cost of hiring a new employee.

Hiring

  • The interview process: The hourly rate of the interviewer X the time the interviewer takes to interview the candidate
  • Background checks: Credit checks, police reports, etc., which usually cost money
  • Paperwork: Printing, filling, signing, duplicating and filing forms
  • Legal representation: In some cases, as with serious nondisclosure or noncompete documents, an attorney may need to be present

Salary and Benefits

  • Annual salary: The base compensation a new employee will receive
  • Bonuses: Many companies offer bonuses either at the holidays or for reaching specific quotas, and these must be figured in
  • Health care and other forms of insurance: Medical, dental, vision, workers compensation can all add up
  • Retirement plans: 401(k)s and other matched savings plans
  • Tuition reimbursement: An increasingly popular option whereby a company pays for an employee to go to school
  • Miscellaneous: Parking passes, relocation, etc. may make for a more attractive package to your candidate, but can also add up

Onboarding

  • Training: A necessary step before an employee can reach full productivity
  • Increased feedback and reviews: While also necessary, another step that costs more time and money than the average employee
  • Reduced output: Reduced output, increased errors and more hand-holding that is needed during the first few months, or even years, of a new role

None of this is intended to dissuade a business from hiring people, which, in any case, is impossible. It simply means that businesses – small businesses especially – can’t afford ongoing costs like this, which is why it’s crucial you start screening applicants more carefully before you bring them on board. If you have an HR department capable of doing this, great, otherwise you might need the help of a recruiter.

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