How Much Does It Cost to Hire a New Employee

As a business grows, the owners and managers will eventually reach a point where they have to make an important decision: do they want to hire new workers to handle some of the responsibility. Without an adequate staff, the business might not keep up with customer demand. Poor customer services, delayed orders, and other mistakes could mean that the business loses its customers. Hiring a new employee, however, is not as easy as it might seem at first. In fact, a new hire could cost your business a lot of money.

The Cost of Hiring a New Employee

Some costs of hiring a new employee are obvious: searching for a suitable candidate and training the new hire, for instance, cost money. Other expenses, however, are not so obvious. Higher unemployment costs, more time devoted to keeping employee records, changes in payroll, and lost intellectual property are just a few of the unseen costs that businesses pay. According to a report by the Institute for Research on Labor and Employment at UC, Berkley, turnover in management positions often costs 150 percent of that person’s salary.

Not all of these expenses apply to hiring someone into a new position instead of replacing an existing employee, but it quickly becomes obvious that any new hire will cost quite a bit of money.

If a manager makes $60,000, then your company can expect to spend $90,000 searching for a replacement. Of course, not every employee is worth as much as an experienced manager. Employees that perform unskilled tasks cost less to replace. The 150 percent average rate, however, could apply to any job position. Unskilled workers just get paid a lot less than experienced managers.

Can You Reduce the Cost of Hiring a New Employee?

There are some things that business owners and managers can do to keep costs lower. If you already have an employee working well in a position, then consider what you can do to keep her in that position (or at least within the organization). That means you get to avoid the costs of hiring a new person. Of course, if the current employee is not performing her job duties well, then you might need to replace her. Unfortunately, that is the risk that you run as an employer.

If you are looking to hire someone for a brand new position, then try to conserve money without making it even harder for you to find the right candidate. You might consider using an employment service for temporary or permanent help. Hiring a part-time worker could also keep your expenses lower, since you probably do not offer as many benefits to part-time staff.

Weigh your options carefully before hiring a new employee. Consider whether you really need someone new in the organization, or whether you can improve efficiency to meet your goals without hiring someone else. If you must, then make sure you find the right person for the job. Then try to keep her as long as you can.



Matt Thompson has written for numerous online and print publications. He has spent time as an editor for a media research company that supplies marketing materials to some of the country's most influential corporations.