What’s the Full Cost of Hiring a New Employee? | Small Business Advice

Samir Sampat

Hiring is an investment that every business will likely eventually need to make. Unless you are a small solopreneur that contracts all the additional services that you need, your business growth will require people to help you along the way. Of course, knowing what that investment will be can often ease the stress involved and help reassure companies that they truly can afford the help that they need. 

There’s a lot more to hiring an employee than just their salary, though. What about posting the wanted ad and sourcing candidates? How much is it costing you to interview people? And what do you spend on hiring and onboarding? Finally, don’t forget things like overhead and benefits, because those are part of the cost of hiring an employee, too. 

If your internal adding machine is going off the rails, don’t worry. We’ve got everything you need to know here. In this article, we’ll talk about all the costs that come with hiring an employee, as well as how to budget accordingly and where you can afford to save a few bucks. Most importantly, we’ll talk about areas where you definitely shouldn’t skimp, no matter what business you’re in or what kind of help you’re hiring. 

Plus, after doing this for one or two employees, you’ll have a much better idea of what to expect in the future. Factoring in all the costs of hiring and employing a new team member will almost become second nature. For now, it’s all still very new, but that’s okay. Read on to learn everything that you need to know about adding to your company. 


Calculating the cost of hiring an employee


To figure out just what it’s going to cost to hire someone, you have a lot of questions to answer. Namely, what role are you hiring for and what type of costs are involved? For example, are you offering benefits? Are you covering a two-week training session that requires travel? It’s all part of the investment, and it’s got to be factored into your hiring decision. 

It is going to be cheaper to hire an assistant than to hire a marketing executive, naturally. However, the variable costs involved are different for every business, as mentioned above. While you’re thinking about it, list out as many cost factors involved in hiring that matter to you. Consider the factors that occur to you that may or may not be involved in your decision, too, just to be sure that you cover all your bases. 

Now that you’ve got an idea of what you think you need, let’s talk about all the potential costs that come up when it comes to hiring an employee. 


Sourcing candidates


One of the most overlooked areas in hiring expenses is the cost of actually sourcing the candidates. Unless you’re only posting help wanted ads on your existing website and social media pages, for example, you’re going to have to pay to post your available jobs on various job boards. Not only that, but even with only using your sites, you’re still paying someone to take the time to post the jobs and follow up on applications, leads, etc. 

You can’t put a dollar amount on this for the sake of generalization—some companies may spend thousands of dollars on recruiting and sourcing while others might get off cheaply, spending less than $100 to post their job online and find a candidate. 

The important point is to include this in your budget and be mindful of what you’re spending on posting job ads and searching for help because that can add up quickly. The Internet does make it a lot more affordable to post job ads and look for employees, but it’s still not always free. Even if you can only budget a couple of hundred dollars here, give what you can. 

If you only use free resources to hire candidates, you’re probably not going to find the best ones available. You might find some decent help, but you may also have to weed through a lot of fodder along the way. You get what you pay for, after all. 


Training and onboarding


According to the Society for Human Resource Management, the average $15 per hour job will have an onboarding cost of around $4,129, which is about six weeks of pay. This includes training, onboarding, interviewing, their first days on the job, etc. For some, this may be unrealistic or unattainable. For others, it may all just be part of the investment and the next logical step in business. 

Of course, this high price tag is one of the biggest reasons that you need to make sure that you factor this into the cost of adding an employee to your team. In some cases, you can cut these costs significantly by changing the way you handle training and onboarding, but you’ll need to make sure that you don’t compromise too much. 

Remote interviews, video screenings, and other digital tools can also help cut the expense of sourcing your new employee(s) when you use them well. 


Salary and benefits


Who are you hiring? What roles are you looking to fill? The cost of hiring an assistant, for example, would be much lower than the cost of hiring a C-level executive that gets a full salary, benefits, stock options, etc. Although we can’t tell you exactly what you’ll spend here because it depends on what benefits you offer and the salary that you’re offering, we can advise you to factor in all the variables here:

  • Hourly pay/salary
  • Benefits (Dental, medical, vision, etc.)
  • Any 401k or retirement contributions
  • Time off/paid vacation time
  • Payroll taxes
  • Etc. 

The point is that there’s a lot more to hiring an employee than just the cost of their pay. Even getting them in the door can put a serious dent in your budget if you’re not careful. If you’re not sure what you’re going to pay an employee, do some salary research. Even just a simple search for “average [position] salary” will return plenty of results that give you an idea of what people earn in various roles. 

It might even help you realize that you can get off cheaper than you anticipated by hiring entry-level support or choosing to outsource to find better talent. Calculate the annual salary, as well as the cost of any benefits and vacation time that you’re giving them, to determine this total. Industry experts suggest calculating 1.2-1.4 times the salary for these costs. 


Other considerations


It may seem like we’ve already covered everything; while we’ve covered a lot, and the majority of the major expenses, there are some other costs and expenses that come with hiring an employee. Consider things like:

  • Uniforms and any PPE (personal protective equipment)
  • Desks, chairs, computers, phones
  • Office space
  • Ongoing training/support
  • Raises over time
  • Insurance (workers’ compensation and any professional liability coverage)
  • Employee events, lunches, etc. 

As you can see, there are a lot of little things that can add up quickly when you add to your team. By taking the time to sit back and think about what you’re spending, not only will you get a better idea of what your investment will be, but you’ll be able to rein it in where possible and make the most out of it. 

For example, you’ll have to pay FICA taxes for every employee (6.2% of their wages for Social Security and 1.45% for Medicare), State unemployment taxes, and FUTA taxes, which is currently at 6% of the first earned $7,000 for each employee. 

Then, there’s the cost of workers’ compensation insurance, which varies from one state to the next and may be different for your company based on its size, risk factors, etc. Professional liability insurance will also have to include coverage for this new employee, which means your insurance rates will go up here, as well. For example, cleaning companies may need additional liability insurance to protect their employees from potential damage or theft claims. 


What about the deductions?


We get this question a lot—yes, you’re investing in an employee, but there are deductions that you get for having employees, too. Still, the deductions come usually in the form of tax breaks that you won’t notice except for once each year. In other cases, the deductions are just minimal compared to the expenses that you’re putting forth to bring a new employee onboard. 

The best thing that you can do, for yourself and your company, is to familiarize yourself with the process of hiring employees and getting them added to your company payroll quickly and easily. That will include an education in how to find and get various deductions for your business based on its employees, along with other factors. 


What if I can’t afford an employee?


There are instances where the cost of hiring a new employee just isn’t in the budget, no matter how you spin it. If that’s the case, don’t despair. The Internet and technology have changed the business world and created a lot more viable solutions for businesses today. Outsourcing makes it easy for you to get the assistance that your company needs at a fraction of the cost of actually hiring an employee. 

Outsourcing will allow you to get better talent, too, because you’ll have access to the entire country (or world) and the professional talent within. You can spend less and get more, too, because you can opt for virtual receptionist services that have all the perks of a receptionist at a lower cost, and often with more dynamic solutions. 

In any case, there are options if you can’t afford to hire someone for your business. Consider contracting the work out or hiring someone remotely so that you cut the overhead expenses and other costs. It may not be ideal, but it’s a way to start bringing people on board when you have limited resources. Outsourcing gives you perks like:

  • Increased efficiency and productivity
  • Lower costs and better solutions
  • Increased growth
  • Improved focus on tasks and goals
  • Flexibility in staffing and meeting demand
  • Improved control of operations 

When you outsource, you get more expert help for a lower cost. You can also find people or teams with better knowledge and solutions, and you can ensure that everything is done quickly and efficiently without having to micromanage every single detail yourself. You will also be able to deliver round-the-clock solutions when you choose one that’s available 24 hours a day, seven days a week. 

So, the bottom line? Employees are great, but if you can’t afford them, don’t sweat it. And even if you can afford them, but don’t need one, that’s fine too. There are other answers out there. If, however, hiring an employee is a must on your list, at least you’re better prepared for the investment moving forward. Simplify things and set yourself up for success by knowing what you’re spending before you dive in. 


If it’s a receptionist you need, partner with Smith.ai instead and save the investment 


For some companies, investing in an employee is just too much. Or, perhaps it just doesn’t make good financial sense. In either case, there are alternatives, such as outsourcing. If your company happens to be in the market for a better answer for fielding calls and messages, scheduling and qualifying leads, and even taking payments and handling other admin needs, a partnership with Smith.ai could be just what you need. 

The dedicated virtual receptionists at Smith.ai are available 24 hours a day, seven days a week to deliver support for after-hours phone answering, live website chat, Facebook and SMS message answering, scheduling and lead intake, and so much more. Plus, we’ll help you customize a strategy that’s scalable and flexible enough to manage it all. 

To learn more, schedule your consultation to discuss what the 24/7 virtual receptionists can do for your business, from admin to communications and more. You can also reach us at hello@smith.ai or (650) 727-6484.


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Samir Sampat

Samir Sampat is a Marketing and Events Associate with Smith.ai. He has experience working with businesses of all sizes focusing on marketing, communications, and business development.

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