The Cost of Hiring an Employee: Read This Before Your First Hire

Congratulations! You’re hiring your first employee.

Making the leap to a two-person operation (and growing) means you can handle extra work, get extra revenue, and address more of your challenges.

Of course, getting off on the right foot with your new employee means mounds of research and paperwork, from tax forms to insurance adjustments. But the most important criteria to keep in mind is the cost.

When it comes to your new hire, what is the cost of hiring an employee, and how can you tell you’re ready to make the leap?

Don’t post a job listing until you read this.

What Is the Cost of Hiring an Employee?

The actual cost of hiring a new employee varies depending on the job—and depending on whether you’re hiring a contract, full-time, or part-time worker.

However, there are a few ballpark estimates to consider. One study found that the price was $4,129 on average, while another puts the cost at $7,645.

Why the variation? Let’s break down some of the most common costs of hiring an employee.

Job Boards

Placing an ad isn’t free on most sites, though the cost can vary.

Some sites will charge you a dollar or more per click on your job ad. Others charge a few hundred per month. All rates you find will depend on the location and annual salary of the position.

HR Team

As a solo business owner, you don’t have an HR. And most small business owners can only afford to spend around 40% of their working time on things that don’t bring in income, such as hiring.

Unfortunately, if you want to work with an HR agency, they’ll take up to 25% of the employee’s annual salary—a hefty price tag for a small business.

Background Checks

You’ll want to know more about your employee than what they’ve said on their resume. Background checks can cost from $5-80, depending on your location and how much detail you want. Keep in mind, however, that you’ll be spending this on every potential employee you consider as a viable candidate.

Training

Employees aren’t productive from day one, and studies show that it can take up to 26 weeks for them to reach peak productivity depending on the complexity of the job. This lost productivity equates to a cost of 1-2.5% of your total revenue.

Salary

Your employee will be receiving an annual salary, which you’ll need to figure into your expenses. This salary, of course, will be broken down and paid in increments—another expense if you purchase costly payment software to keep track.

However, you can also opt for more affordable and easy options as well. For example, use this paystub creator for a simpler option that doesn’t require in-depth knowledge or calculations.

Taxes

You’ll be taxed on the employee’s salary, meaning what you pay will be from 1.2-1.4 times higher than what the employee receives. This means you’ll need to pay up to $70,000 per year for your employee to get $50,000.

Consider Your Next Move

Now that you know the cost of hiring an employee—and the details involved—you can consider the full picture a little more clearly.

Although hiring can cost you additional money on the front end, the revenue, support, and fresh ideas a new employee brings in can be invaluable.

For more tips like these, be sure to keep checking our site.