Business Finance

8 Costs to Consider When Hiring a New Team Member

Aug 10, 2020 • 5 min read
New employee accepting a job offer
Table of Contents

      If you’re considering hiring new staff, that generally means things are going well for your small business. You’re ready to expand and grow your company to its next stage.

      However, there are many expenses that accompany a new hire. Obviously, you have to add a whole new salary to your books—but there are also many costs you might not have considered yet.

      Some of these costs have clear dollar amounts to consider. Other costs come out of your company’s productivity and efficiency. The cost-per-hire for the average American company is $4,129, according to a recent report from the Society for Human Resource Management (SHRM). The organization found that most companies take an average of 42 days to fill a position. Additionally, the average employee works for a company for 8 years. SHRM found that the average company had an annual turnover rate of 19%.

      Here are some of the factors that shed light on these costs, along with some expenditures that can be harder to measure on a balance sheet.

      1. Recruitment

      Before you even hire anyone, there are costs to consider. By some estimates, the global recruiting industry is worth $200 billion. Even though there are free options, such as Craigslist, to use for recruiting potential hires, you still have to spend the time and energy to create classified ads and weed through the applications. The interview process requires even more of your effort—however, choosing the right hire is crucial because you are about to invest thousands more into them.  

      2. Benefits

      Beyond a new employee’s base salary, you will also have to consider which benefits to pay for. While this certainly represents another cost, retirement, healthcare, and other benefits can make a job far more attractive to potential workers. Especially if you are competing with large corporations for talent, you should explore how to support your staff beyond a paycheck if you want your workforce to stay with your company. And you’ll want to factor in regular raises when doing your financial planning, too.

      3. Payroll Taxes

      After salary and benefits, taxes will likely be the biggest expense you’ll face once you’ve made a new hire. The federal payroll tax in the US, known as FICA after the Federal Insurance Contributions Act, is split between employers and employees. As an employer, you’ll pay a 6.2% Social Security tax and a 1.45% Medicare tax based on your employees’ income. You’ll also be responsible for unemployment taxes and any state payroll taxes, which vary depending on where your company is based.

      4. New Equipment

      With every new person added to your workforce, you’ll also have to purchase a new set of equipment to help them start the new job successfully—and the cost of new computers, desks, and office chairs adds up. Even if your business doesn’t inhabit an office, you should factor in the costs of the tools and facilities your new hire will need.

      5. Onboarding

      The first few days of your new employees’ time at your company will probably be comparatively unproductive—first, they need to learn the ins and outs of your business on a very basic level. To get them up to speed, you should put together some onboarding materials or classes that you can reuse with each new hire. Many companies now provide new hires with onboarding training before their first day—this way, employees can hit the ground running when they first enter the building.

      6. Ongoing Training

      Depending on your business, it will likely take a new employee between a few months to a full year to become fully trained. This process will require patience, encouragement, and money on your part because you can’t expect your fledging hires to be as efficient or productive as your older hands. However, paying attention to the ongoing education of your more seasoned employees is key as well—this way, you can mold them into the workers that your business prizes.  

      7. Deferred Productivity

      The productivity of a new hire is no match for someone more seasoned—and this differential can actually represent a large cost, especially if you hire a bunch of new workers at once. Before starting the recruitment process, determine the time it will take to get a new employee up to speed and what you can do to improve this.

      8. Turnover Risk

      Unfortunately, there’s a chance that you will invest money, time, and emotional energy into a new employee, only for them to depart within a few months. While the balance of power between employers and workers often shifts due to wider economic trends, the truth is that your decision to hire someone new might result in turnover no matter how the job market is. Still, this isn’t a reason to despair—it can help you learn how to be a better boss. 

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      About the author
      Barry Eitel

      Barry Eitel has written about business and technology for eight years, including working as a staff writer for Intuit's Small Business Center and as the Business Editor for the Piedmont Post, a weekly newspaper covering the city of Piedmont, California.

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