Most companies can expect to pay between $4,000 and $20,000 to hire a new employee, not including salary and benefits. This is because the salary and benefits for the average employee actually total 1.25-1.4 times the base salary. Budgeting for a new role is crucial in the hiring process.
Hiring an employee shouldn’t be done lightly, but a strategic approach can save you from surprise costs down the line. By carefully budgeting for your new employee, you can ensure that your investment in a new team member pays off as quickly as possible.
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What Factors Influence Employee Cost?
It’s important to recognize the different factors that determine the cost of hiring a new employee. As you construct a budget for a new role, you should take the following into account:
- Location: Cost of living and local taxes will both have an impact on the salary you offer for your new role.
- Industry: Depending on your field, it may be standard to offer certain benefits. For example, matched 401(k) contributions may be an expectation for your new hire.
- Market Conditions: If it’s a candidate’s market, you’ll need to offer much more competitive packages to potential hires.
- Role: Of course, roles with more seniority in your company will need to offer higher salaries and more generous benefits.
- Company Size: Larger companies often have lower costs per employee due to better deals on payroll fees, office space, etc.
Costs of the Hiring Process
There are more costs to consider than just your new employee’s salary as you move through the hiring process.
- Recruiting Software: If you have a larger company or hired outside recruiters, you may have recruiting software fees to pay.
- Recruiter Fees: Hiring outside recruiters typically means paying a flat fee or percentage of your new employee’s salary to the recruiting firm.
- Job Posting Fees: Most job posting websites, such as Indeed and ZipRecruiter, will charge a monthly fee or fee per job post.
- Background Checks: Oftentimes, you will have to pay a fee for every potential employee you run a background check on.
- Onboarding: Did you know that small companies typically spend $1,500 on training each new employee? Depending on the role, it’s possible that your new employee will need several weeks or months of training. As you budget, factor in the time that it will take them to get up to speed within your organization.
- Overhead: Consider how an additional employee will affect your everyday costs like office space, office supplies and technology, and operating costs (like running payroll).
Once your new employee is officially hired, there will still be other new costs emerging. One major cost is payroll taxes. Some common taxes you may need to take into consideration are:
- Federal Insurance Contributions Act (FICA)
- Federal Unemployment Tax Act (FUTA)
- State Unemployment
- Local taxes
Another source of costs is benefits. Depending on the role, you’ll need to allocate money for the following expenses associated with employee benefits:
- Health insurance (medical, dental, vision, etc.)
- Life insurance
- Retirement contribution
- Workers’ compensation
- Paid time off
- Tuition reimbursement
There are a lot of factors that go into budgeting for a new role and new employees, but don’t be overwhelmed! Planning carefully before you make a hire will reduce financial stress later on.
This article was originally published on November 4, 2021; it has since been updated and republished on May 25, 2023.