Employees’ talent, skills, and time make up the core of a successful business. But let’s be honest: people are expensive.
The true total cost of an employee goes well beyond the salary offer. From pre-hiring activities to benefits like tuition reimbursement, a single employee’s overall cost to a business can add up to 30%, or even 100%, more than that worker’s actual pay.
Finding the right employee can be a time-consuming process, but it certainly pays off -- and hiring the wrong employee can cost a tremendous amount in both the short and long runs. Whether you’re paying a contractor to find and identify talent or handling the process yourself, it takes time and money to find the right fit.
Once you’ve identified top talent, you’ve got to agree on terms that are a blend of value to your business and ensuring that a great hire won’t choose greener pastures in six months. You don’t want to overpay, but you also don’t want to be right back where you started -- minus recruiting costs and your early investment -- because your compensation wasn’t attractive enough to hold on to your employee.
You’re responsible for a portion of Social Security/FICA, federal and state unemployment taxes, workers’ compensation with a new hire, and that’s non-negotiable. Some tax credit programs can ease these burdens (such as credits offered when hiring the previously-unemployed), so check with your trusted advisers to find out what current programs your business might be eligible for when making a new hire.
You’ve pulled the trigger and brought on a new team member, and now you’ve got to get them up to speed. Training costs apply to virtually all employees, from hands-on jobs to getting knowledge workers on board with your projects. They’ll also need time to become familiar with company policies and their new co-workers.
Management and Administration
Every employee answers to someone, and adding a new member to the team means that you need to factor in the cost of their management. Adding responsibilities to a manager’s job might be minimal or significant depending on the type of hire, but don’t forget that a range of administrative duties (payroll, HR, etc.) are impacted as well.
Are you planning on contributing to an employee’s health care costs? Dental? Retirement? Or what about incentives to pursue further education useful to both you and the employee? Offering generous benefits can help attract and retain great talent -- the costs of benefits can mount quickly, but they can also be offset by lower recruiting costs and drive long-term productivity.
Space, Technology, and Supplies
Most employees need a designated place to work and certain items, like computers, to work on. Maybe you have some unoccupied square footage or unused technology, but most of the time you’ll need to factor in the cost of the tools you need to acquire to ensure that your new employee is both productive and successful.
An often-overlooked facet to making a new hire is the cost of what else your business could be doing with the money you’re about to dedicate to another employee. Are your company’s resources best invested in existing employees, or do you need to fill a gap in your workforce? Are you missing someone in a critical role who can bring more out of the team?
Hiring Can Drive Growth, But Hire Wisely -- It’s Worth The Effort
People are everything to a successful business. Finding the right fit and developing their talents can pay off in both productivity and profits. But again, people are expensive, so it’s important to consider every impact that a new hire has on your budget, operations, and culture.
When you make a great hire, your company wins -- and putting time and attention into ascertaining exactly how much of a financial impact a new employee will have on your company will help you make the smartest possible decision while avoiding potential problems.