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How Much Does It Cost to Hire an Employee

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Hiring employees is an exciting but tiring and costly part of running a business. And it becomes even more tiring and expensive if the hiring process is full of inefficiencies and issues. 

Here, we’ll discuss what exactly those costs are, along with how much it costs to hire an employee, and how to calculate the cost of an employee. In answering these questions, we’ll also identify how to reduce the issues and inefficiencies that increase hiring costs. 

How Much Does It Cost a Company to Hire Someone?

In truth, it is difficult to put an exact cost on hiring a freelancer since there are countless variables involved with every new hire. However, that being said, the average cost for a new hire is around $4,000.

That includes the time it takes to fill the role, the amount of money lost while the position is vacant, onboarding expenses, and other generic hiring costs, such as the salary of an HR employee or a recruitment agency fee. 

You will also need to account for the job role and the experience and salary range of the new hire. The higher the salary and the more experience required for the vacant position, the greater the hiring cost.

How Do You Calculate the Cost of an Employee?

When it comes to finding a person to fill a job role, it is imperative to know the position’s value. A job role often costs more than the salary an employee earns. Several additional costs come from hiring an employee.

First, there is the cost of the search. This includes the salary of the HR employee, fees to post on job boards, etc. 

Second, you need to take into account taxes and benefits – as well as any other overtime or commission you may have to pay. Read more about the best way to pay contractors here. Taxes and benefits can vary depending on the type of employee you hire, and what they negotiate for as a part of their contract. Tax rates and benefits can continue to vary even after an employee starts at a firm due to governmental changes in both tax thresholds and benefits requirements. 

Common Problems in the Hiring Process

There are many problems that HR departments, recruiters, and businesses regularly encounter throughout the hiring process. 

First, the amount of time it takes to fill a position racks up costs. The position is vacant but there is still a job to do. If no one is doing that job, the work is not done – or at least not by a dedicated person. Therefore, the quality and standard of work produced is often lower than if a properly trained and qualified employee were doing it. That can negatively impact the company’s profits.

The vacant position puts pressure on HR and recruiters to fill it quickly, but sometimes only lower quality candidates respond to the job advertisement. It means that you either have to leave the position vacant until a suitable candidate is found or fill it with someone that will take a lot longer to train – thus incurring more costs.

To eliminate that problem, some companies may increase the salary for the position – in hopes that better-qualified candidates will apply. That in itself has obvious problems though – namely that it is more expensive. Some companies find it better to go down the headhunting route or advertise the job vacancy in a more targeted field, as a way to find better candidates. 

Another common problem is with third-party recruiters not fully understanding the job vacancy they are filling. They do not always know what qualifications and skills are necessary for the position, so they hire someone not fit for the role. To avoid this common mistake, you need to communicate clearly with your recruiters in detail about the roles and responsibilities of the position. You can also have an employee who is familiar with the role help with the hiring process. 

The True Cost of Hiring an Employee

The true cost of hiring an employee is always more than the salary. Those conducting the job search have to be paid, and the vacant position has associated costs too. Hiring an employee can be a difficult task, but with patience and experience, you can find the ideal person to join your team. 

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