How Much Does It Cost to Hire a New Employee?

You Can Keep Costs Lower by Making Decisions About the Best Methods

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Have you ever thought about the cost to hire an employee? In Human Resources, you often talk about the costs associated with turnover, but not all new hires are filling a vacancy. When you have a growing startup (or a growing firmly established business) you will still have costs to hire—and some of these costs are different than when you hire a replacement person.

The actual numbers for your business will vary wildly depending on your location, the type of position, the time it takes you to fill the position, and numerous other factors. But, when you hire an employee, these are some of the general costs you will experience.

Recruiting Costs When You Hire a New Employee

Before you can start recruiting, you need to write a job description. If this is a completely new job, writing a job description is often quite complicated. You’ll need to identify the core functions needed for performing the job and the skills required to do them. You’ll also need to determine a market based salary range for the position.

You can’t skip any of these steps and it may take you some time to figure them out. The core functions are critical not only for finding the right candidate, but they can play a potential role in determining a reasonable accommodation for a new hire under the Americans with Disabilities Act.  

You need to know the required skills (what they must contribute from day one and what you can train them to do) before you can figure out a salary range. Make your salary too low, and you won’t get the skilled and experienced candidates you need. Make it too high, and you’ll overpay your new employee and you may anger your lesser-paid employees working in similar jobs.

If you use an internal recruiter, then the costs include her salary for any time she works to fill this position. If you hire an outside recruiter or headhunter, you will also incur heavy costs. Top Echelon, which makes recruiting software, found the average costs for a headhunter to find your new hire:

  • Recruiting fees average: $20,283
  • Average fee percentage: 21.5%
  • Average starting salary: $93,407

You can minimize your internal costs more easily. But, when you calculate the time the hiring manager, recruiter, and the employees on the hiring committee spend, you’re investing a lot of salary dollars into finding the perfect employee. Then, if you post the job on a job board you’ll pay for that as well. Handled internally, you can expect to pay around $4000 in recruiting costs for a midrange position.

Training Costs When You Hire a New Employee

Every new hire needs training—even that industry expert who you just paid a headhunter a fortune to find. Your new hire needs to learn how your company operates and what you expect her to do. Generally speaking, the higher paying and more responsible the job, the more time and dollars you’ll spend on training costs.

These costs include not only your new hire’s time to learn the tasks of the position, but the time spent by other employees providing that training. These employees can’t effectively do their jobs while they are training the new hire.

One study estimated that you’ll spend 38% of an annual salary to train a new hire. While you say that you will hire an employee who can “hit the ground running,” you will always have training costs. When the position is a new one in your organization, you may experience even higher training costs. This is because no previous employee who left behind a set of instructions for how to do the job existed.

The Society for Human Resource Management (SHRM) recommends that you include these costs as you calculate the cost to hire a new employee.

Have These Costs to Hire a New Employee Scared You?

After reading these estimated costs to hire a new employee, you might think that your business­—especially a small business—can’t afford to grow. But, you also can’t afford to stay where you are. If you have the business to support a new person’s salary, and a new person will help your company succeed, don’t panic about the costs.

Your salaried exempt employees will earn the same amount of money, even if they have to work more hours to train the new hire—which is good for your pocketbook but can harm employee morale. Make sure you’re not overburdening hiring managers or team leads who train the new hires by hiring too many people at the same time.

Take a look at your recruiting techniques to make sure you’re using the most efficient and cost-effective methods. For example, you may find that offering a $1000 referral bonus lands you great candidates. According to the Society for Human Resource Management, “30% of all hires overall in 2016 and 45% of internal hires,” came from employee referrals. This recruiting method also saves you the cost of hiring a headhunter.

If you’re paying a large amount of money for a subscription to a job board, make sure you’re actually getting quality candidates who saw the posting on this board. If you’re not, stop.

New hire costs are high, but the costs are worthwhile to find a great new person to help your company succeed. Plan carefully so that you truly hire for the skills you’ll need today and tomorrow, and don’t wait until you’re desperate to start the recruiting process. You likely won’t save much money recruiting quickly, and you may end up with a less qualified candidate.