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The cost of hiring a new employee

Posted by Kanika Sinha

February 7, 2016

Congratulations. You’ve decided after months of wearing many hats at your startup that it’s time to hire a new employee. Along with the excitement of bringing on a staff member or two, comes the inevitable question, “How much will it cost?”

It might seem simple. You might think you can hire someone, pay them a salary and call it good. Well, it isn’t quite that simple.

A new employee means much more than just the cost of their salary – which might even be a stretch for your new startup. You want to factor in the cost of recruiting, training and other items.

Here are a few things to consider when hiring a new employee:

• Recruiting, including advertising
• Salary
• Benefits
• Liabilities and expenses
• Paperwork
• Training
• Legal

To give you a ballpark approximation of what it costs to hire a new employee, we can share that one estimate has the average cost of recruiting, hiring and training at close to $4,000.

Let’s dive into some of the items that factor into the cost of hiring a new employee.

The recruitment process

You might be thinking, “I’m just hiring someone to answer the phones, how much can it cost?” Even a lower-wage hourly employee can cost your startup big dollars.

Whether you’re hiring a chief financial officer or a receptionist, the cost of finding just the right employee to join you in your new venture carries a heavy price tag.

Consider the steps to a successful recruitment:

• Advertising the position
• Hiring a recruiter
• Resume review – by yourself or by others
• Background checks and drug screening
• Interview time
• Pre-employment assessment tests

These steps involve time and money which must be factored into the cost of hiring a new employee.

The training process

Once you’ve recruited your new employee and found the perfect person who shares your startup’s goals, you’ve got to train this person so they can do the work you need done. You’ll need to show them the ropes and earn their loyalty.

How much does new hire training cost?

The Association for Talent Development says that most businesses spend on average about $1,200 on training and employee development. The number of learning hours is nearly 32 hours, which is just shy of an average work-week.

We’ve looked at the cost to train the new employee as a function of their overall cost, but don’t forget to factor in the cost of your time. You’re looking at extra hours involved in your new employee’s orientation and training.

While not an active part of the new employee’s training, you want to look at the cost of a desk, chair, storage, phone and computer equipment as part of the overall cost of hiring a new employee.

 The salary package

We’ve finally come to the nitty gritty. How much do you have to pay this new person? The biggest cost of hiring a new employee lies in the salary and benefits.

Will you offer health and/or dental insurance? How about life insurance? Disability insurance? Have you thought about sick leave and paid time off? Tuition reimbursement sometimes comes into play. Will you offer a retirement plan?

When you think of salary, again, it includes more than the salary itself. Many businesses include benefits that are up to 1.5 times the base salary. For example, you might consider a salary of $70,000 for your CFO that includes an additional $15,000 in benefits for a total package of $85,000.

Final thoughts

As you can see, the cost of hiring a new employee includes many variables. Don’t let these costs scare you away from actually making the investment of hiring a new employee.

If your startup is in the right place, and you need the extra help, it’s often worth the venture. After all, without hands to do the work, the work doesn’t get done. Consider the potential return when hiring a new employee.

To help you plan for some of the costs involved with hiring, check out this worksheet from the University of Minnesota.

This is a nice checklist that includes much of what you need to consider when hiring your new employee. You might find pieces of it to create your own worksheet. This helps you decide whether or not you can actually afford to hire that new team member.

You can also view this infographic from recruiterbox. It includes the cost of hiring a new employee in some common industries.

Deciphering all of the costs that go into hiring new employees can be time consuming. If you’d like help, you can count on our expert team at Escalon to guide you through the process.

 If you’re ready to get your startup off the ground by hiring new employees, we are here for you. We can help answer your questions and guide you through the process. Outsource your finances, payroll, HR duties and more to us. Contact Escalon today to get started.



Kanika Sinha
Kanika Sinha

Kanika is an enthusiastic content writer who craves to push the boundaries and explore uncharted territories. With her exceptional writing skills and in-depth knowledge of business-to-business dynamics, she creates compelling narratives that help businesses achieve tangible ROI. When not hunched over the keyboard, you can find her sweating it out in the gym, or indulging in a marathon of adorable movies with her young son.

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