Thinking about bringing some fresh talent into your team? That’s exciting! But before you post that job ad, let’s talk dollars and sense because understanding the full cost of hiring employees is essential unless you like surprises in your budget (spoiler alert: they’re not the fun kind).

Why do Hiring Costs Matter?

First things first, why obsess over your hiring budget? Here’s the scoop: Knowing the complete financial commitment upfront helps you make smarter, more sustainable business decisions. It’s not just their salary; it’s about ensuring that every dollar you spend is an investment in your company’s future—not just an expense.

Breaking Down the Cost of Hiring a New Employee

When you think about hiring employees, you likely think about salary and wages. But beyond the obvious, several other costs can eat into your profits.

Recruiting

Whether it’s job board fees, an external recruiter, or the cost of your time spent on interviews, finding the right person has its price tag. Recruitment costs an average of $4,700 per employee.

Background Checks and Screening

Ensuring your new hires are as good as they seem? Priceless but also pricey.

In general, reliable background screening services cost anywhere from $30 to $100, depending on how in-depth you want your background check and other screenings to be. Inexpensive options might simply give employees a “pass/fail,” while more comprehensive screenings look for a criminal record, verify their education credentials and work experience, and more.

Relocation costs

When looking for the right employee, you might want to expand your talent search beyond your local area. But if that perfect-fit employee needs to move, they might expect you to cover their relocation costs.

You generally have two options when providing financial assistance for an employee’s move. You can reimburse their actual expenses or give a lump sum relocation allowance.

In general, a reimbursement is best for you and your new team members because it’s tax-deductible for you but doesn’t count as taxable income for the new employee.

Benefits

Think about health insurance coverage, retirement plans, and maybe even trendy perks like gym memberships, wellness programs, and tuition reimbursement.

On average, employee benefits cost $12.06 per hour per employee.

And don’t think you can just forego offering employee benefits to keep costs low. According to a Glassdoor survey, 57% of workers say benefits and perks are among their top considerations when accepting a job. If you want to make your business an attractive place to work and encourage good people to stick around, you may need to offer a benefits package.

Training

Got your new hire? Great! Now factor in the cost of getting them up to speed.

Companies spend an average of $1,252 per employee on training costs and employee development.

Again, this is an area you don’t want to skimp on. Training employees is more of an investment than an expense. You’ll save money in the long term if your employees are well-trained. You don’t want to unleash them on your customers without any knowledge of what they’re doing, right?

Office Furnishings and Equipment

A comfy chair and a sturdy desk? Essential. These items help your new hire feel at home. And office supplies can help them get productive quickly.

You may also need to invest in a computer or laptop, software licenses, phones, and all the other techy trimmings.

According to Indeed, outfitting desk space for a new employee costs an average of $1,500 to $3,000. Of course, if you already have these items on hand, you can save some money. You may also reduce these costs by hiring a remote employee.

Insurance

More employees can mean higher insurance premiums. This isn’t just health insurance, which falls under employee benefits. It can include workers’ compensation, state unemployment insurance, and potentially higher professional liability insurance premiums, depending on your industry.

Payroll Taxes

Federal and state payroll taxes are non-negotiable and can add a significant chunk to your employment costs.

On the federal side, employers and employees each pay 6.2% of the employee’s compensation for Social Security and 1.45% for Medicare. Social Security is capped, applying to the employee’s wages below the wage base limit—$168,600 for 2024. There is no cap on Medicare tax.

You’re also responsible for Federal Unemployment Tax (FUTA) and State Unemployment Tax (SUTA).

If this is your first hire, you may also want to hire a payroll processing service to calculate compensation and withholding, issue paychecks, and file payroll tax reports.

How to Lower the Cost of Hiring

Now that you have a better grasp on the actual cost of hiring a new employee, it’s time to think about ways to potentially lower those costs.

Hire Remote Employees

Hiring remote employees can reduce your overhead costs. For example, say you’d need a bigger office space to hire new employees. A remote employee would keep your office footprint small, potentially lowering your rent, utilities, and other costs.

You might also be able to save on furnishing an office space. Many companies that hire full-time remote workers take a “desk-up” approach to outfitting a remote employee’s home office, meaning they provide a computer, keyboard, mouse, and any other piece of equipment that sits on top of the desk while the employee is responsible for providing their own desk, chair, and other furnishings.

Consider Outsourcing

Outsourcing work to independent contractors or freelancers allows you to get essential tasks done without the cost of hiring a permanent employee.

Keep in mind that when you outsource, you don’t always have control over how, when, and where the work gets done—you can only control the end result.

Deciding When to Hire

So, when do you know it’s the right time to expand your team? Here’s a tip: hire when the cost of not filling a position outweighs the cost of filling it.

For example, if you’re turning down work, can’t meet current demands, or your existing staff is regularly working overtime, these are signs it might be time to hire. Also, consider whether the new role could generate enough revenue to cover costs and contribute to profit.

Get Help with Hiring from NewWay Accounting

Feeling a bit overwhelmed? Don’t sweat it! Contact NewWay Accounting or help crunching those numbers and deciding if you can really afford to bring someone new on board.

Let’s make sure the hiring process is strategically sound so you can grow your team the smart way!