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What Is the Cost of Hiring New Employees?

Expanding your team is a big part of growing a business. However, the cost of hiring new employees can catch you off guard, especially if you’re new to the process. When you’re aware of common hiring expenses, both in terms of money and time, you can prepare the business to absorb the cost.

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What are hiring expenses?

Hiring expenses are the visible and invisible costs of bringing a new employee into your organization. You’re probably anticipating some of the biggest expenses, such as recruiting fees, candidate travel or relocation expenses.

Hiring also comes with additional costs that are harder to quantify. For example, when you first bring on a new hire, you may experience an initial decrease in productivity as the new hire learns their role. It’s also safe to expect lost time from current employees as they participate in the hiring process and help the new hire acclimate.

Related: The Basics of Employee Turnover: Steps to Prevent

Most common hiring expenses

To ensure your company’s finances are on track, it’s vital to understand the true cost of hiring a new employee. Before recruiting, review the most common hiring expenses so you can prepare effectively.

Recruitment team

If your internal resources are limited, an external recruitment team can be a big help in finding the best potential candidates for your business. By handing over recruiting to a third party, you can also save time for your existing employees.

Depending on the company you choose, you can expect to pay a commission of 15% to 30% of the hired employee’s first-year salary to the recruiter in exchange for finding your new employee. If your new employee comes in at $50,000 per year, the recruiter will get between $7,500 and $15,000. Some recruiters earn even higher commissions, depending on experience and the industry.

Internal human resources team

Whether you use an external recruiter, you’ll likely need at least one person or a small team of people to manage in-house human resources responsibilities. They may conduct recruiting or handle the internal onboarding and training processes.

This cost is harder to quantify because human resources salaries can vary, but the average human resources specialist’s salary is $53,130 per year.

Career fairs

Career fairs and other employment events can be great places to meet prospective candidates. If these events are part of your recruiting strategy, you can expect to pay a fee of around $100 to participate. You’ll also need to send employees to staff your company’s booth, which creates an additional cost.

Job posting fees

One of the best ways to find potential candidates for your company is by posting jobs on online job boards. Many job seekers use these job boards when looking for new positions, so you’ll likely receive several applications. Each job board structures its payment scheme differently, but you can expect to pay around $300 per month per job posting.

Background checks

After selecting the candidate you want to hire, you’ll likely want to run a background check on them to ensure they’ve been honest about their past. Simple background checks usually start around $10; more complicated versions can cost more than $100, depending on the information you need and the company you use.

Testing services

For certain jobs, you may want to ask top candidates to complete pre-employment testing. If the open position has specific requirements, testing can help you verify critical skills and knowledge.

External testing services add to the cost of hiring employees, but the actual amounts can vary significantly. On average, you can expect to spend $50 to $100 to set up an account with the testing company. Most companies also charge an additional fee for each test. Custom tests are typically more expensive than standard tests.

Employee referral bonuses

Your existing employees can be a valuable resource in the hiring process. To encourage them to pass along promising candidates, you might consider offering a referral bonus. You have the freedom to set the bonus amount; for reference, a common bonus is between $1,000 and $5,000 per successful referral.

Relocation

If your new hire is moving from a different area to join your organization, you might sweeten the deal by paying for their relocation expenses. Some companies offer a set amount, while others pay a percentage of the move’s full cost. Depending on where the employee is coming from, relocation can be expensive. Many companies spend between $21,300 and $25,000.

Employee onboarding

Onboarding a new employee takes time. Depending on the role, you can expect to spend at least one day on the process; some roles require several days. During that time, your new employee won’t be producing any value for your organization, and the person in charge of onboarding loses the time they normally spend on other company tasks.

Onboarding costs depend on the new employee’s salary and the supervisory employee’s salary. As you’re estimating costs, it’s safe to expect a potential loss between $1,000 and $5,000.

Job training

Job training can take a substantial amount of time, especially when you’re hiring for roles with specific skills or compliance requirements. In some cases, the new employee might need weeks of training before they can fully perform their job. While training is happening, you’ll lose the new employee’s productivity. Plus, you can expect to pay for the training itself. Depending on your company size and industry, you can expect average training costs of $722 to $1,438 per employee.

Website

Even if you’re not in a hiring cycle, you’ll want to keep your website’s careers or employment section up to date with general information about working for your company. If you have an in-house website administrator, the employee’s salary will absorb these costs. If not, you’ll need to hire someone to update and maintain the careers section. Website maintenance generally costs between $60 and $60,000 per year, depending on the size of the site.

Compensation

One of the biggest hiring expenses is the new employee’s salary and benefits package. If you’re hiring for a brand-new position, the salary and benefits will significantly impact your company’s expenses. If you’re replacing a former employee, it won’t cost quite as much. Keep in mind that your new hire may negotiate a higher salary.

Salaries range dramatically depending on the role, industry, location and company size. In 2021, the median annual wage for entry-level jobs that require a bachelor’s degree was $78,560. Jobs with no formal educational requirement had an average salary of $29,420.

Workplace infrastructure

When your new employee arrives for their first day, they’ll need a variety of physical items to perform their job. Necessary supplies include:

  • Desk and chair
  • Computer
  • Cell phone
  • Office supplies

In some cases, you may already have these items in your possession. For new positions, you’ll need to purchase these for the employee. Should you need to fully outfit a new desk space for an employee, you can expect to spend between $1,500 and $3,000.

Employee introduction

Introducing new team members can impact your overall company’s productivity. This is particularly true in small companies or close-knit departments; a new employee can change how other employees work.

Fortunately, this is usually a short-term challenge and one that should resolve as the new employee becomes more comfortable with their responsibilities. In the beginning, though, you can expect lost revenue costs ranging from several hundred dollars to more than $1,000.

How much does it cost to hire an employee?

Hiring costs can vary significantly based on the company, hiring process, location and role. If you use a no-frills, in-house process and have all the supplies for a new employee, you could spend as little as $2,000. However, most companies can expect to pay between $4,000 and $20,000 to hire a new employee, not including salary and benefits.

Given the associated expenses, it’s vital to take the time during the hiring process to ensure your new employee is the right fit for the position and your company.

FAQs about the cost of hiring a new employee

Is it cheaper to hire a new employee or train an existing one?

Given the cost of hiring an employee, it’s often cheaper to train one of your current workers. By training someone, you won’t need to pay for recruitment and relocation. Since the person is already part of the company, you’ll also see a smaller dip in productivity as they integrate into their new role. The actual cost comparison depends on the type of training you’ll need to provide, as well as the employee’s current and anticipated salary. Technical or high-level training can be expensive, and you may need to offer a salary increase to compensate for the extra responsibility.

What is a hiring budget?

A hiring budget is the money you set aside to cover the cost of hiring new employees. To set up a hiring budget, determine how many people you need to hire in the coming year. Then, estimate how much you’ll spend to bring on the new employee, considering existing in-house resources and any external services you’ll need. With the funds set aside, you can enter the hiring process without worrying about overspending.

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