How Much Does It Cost to Hire a New Employee? Average Cost Of Onboarding

The average cost per hire varies from business to business. 

It can be significantly higher for specialized positions, sometimes reaching several multiples of the employee’s annual salary. This comparison underscores the financial stakes involved in recruiting the right talent.

A Harvard Business School review survey highlighted that hiring and retaining top talent is necessary for business success. The survey found that companies could take up to six months to break even on a new hire. This is because new employees need extensive time to reach full productivity.

The recruitment cost varies widely based on company requirements and needs. Usually, it depends on significant factors like;

• Position for hiring,
• Industry ,
• Company’s location.

Businesses often hesitate to hire new employees because of the considerable time, effort, and expense involved. 

Beyond base salary, employers must consider benefits, in-house training, and the potential loss of productivity during the onboarding period.

By understanding and minimizing these expenditures, companies can streamline their recruitment processes and reduce the overall cost of hiring.

Therefore, efficient hiring practices not only save money but also ensure that businesses secure the right talent to drive their success.

What Are Hiring Expenses?

While hiring employees for your business, recruitment encompasses the following hiring expenses costs that include,

• Recruiting costs
• Interview expenses
• Background checks
• Training sessions
• Health insurance
• Unemployment and Disability insurance
• Retirement contributions

When considering hiring expenses, it’s necessary to assess all costs involved beyond just the employee’s salary. 

What Is a Hiring Budget?

The hiring budget is the financial plan outlining the costs associated with bringing a new employee on board. 

It encompasses various expenses beyond the employee’s salary, such as;

• Recruiting fees
• HR processing costs
• Training expenses
• Benefits
• Insurance
• Taxes

By accurately estimating these costs upfront, businesses can make informed decisions about their;

• Recruitment strategies
• Allocate resources efficiently
• Ensure they have the financial capacity to support new hires

Does Cost Per Hire Matter?

Absolutely, the cost per hire provides insight into the financial investment required for bringing new team members on board. 

By analyzing the cost per hire, businesses can make informed decisions about their hiring strategies and budget allocation. It helps assess recruitment processes’ efficiency and identify areas for improvement. 

Moreover, tracking the cost per hire allows businesses to compare their hiring expenses over time and benchmark against industry standards. 

For small business owners, with limited budgets, cost-per-hire understanding maintains financial stability while attracting top talent. 

Onboarding New Employees Vs. Investing in Existing Employee Training?

Prioritizing existing employee training can be a strategic investment for long-term success and growth. Onboarding a new employee bears costs related to recruiting, training, and benefits. 

However, investing in existing employee training can yield significant benefits. By enhancing the skills and knowledge of current staff, businesses can;

• Increase productivity
• Reduce turnover
• Promote loyalty

Moreover, training existing team members often proves more cost-effective in the long run than constantly hiring and onboarding new staff. 

What is the Right Time to Hire a New Employee?

• Check workload: Watch for missed deadlines, errors, and overtime.
• Consider business growth: More clients or projects might mean needing more help.
• Identify barriers: Look for places where things aren’t running smoothly.
• Monitor team morale: Watch for signs of burnout like low motivation or increased absences.
• Anticipate staffing needs: Think about upcoming projects, seasonal changes, or staff turnover.

How Much Does It Cost To Hire A New Employee? Most Common Hiring Expenses

As previously discussed, companies have to pay some cost when hiring a new employee. Read along to learn about the most common hiring expenses.

1. External Recruitment Team

When there is a job opening, hiring outside teams can really help businesses with better talent acquisition. 

These teams, like specialized agencies or headhunters, are good at finding the right people quickly. An external recruiter knows a lot of people and understands the industry well, so they can find top candidates who might not be easy to find otherwise. 

Even though their help costs money, usually a percentage of the new employee’s salary. However, it’s often worth it because they find good people fast and save time.

2. Internal HR Team

Internal HR professionals are necessary for hiring, doing everything from job posting ads, writing job descriptions, hiring, to training new hires. 

While they don’t charge like outside agencies, their time is valuable. The hiring team spends lots of hours finding candidates, checking resumes, and arranging interviews. 

Hiring managers also handle background checks to follow the law and keep the company safe. 

3. Employment Events

Events like job fairs and industry conferences provide opportunities to connect with potential candidates face-to-face. While they cost money for things like booth rentals and travel, they’re great for networking and meeting motivated job seekers.

Also, being part of these events shows that your company is serious about growth and staying involved in the industry, which makes it more attractive to job seekers.

4. Online Job Portals Fee

Online job portals have become essential tools for modern hiring practices, offering a vast pool of talent accessible with just a few clicks. 

However, these platforms often charge subscription or posting fees, adding to the overall cost of recruitment. 

Despite the expense, their user-friendly interfaces and search algorithms streamline the hiring process. They make it easier for businesses to find the candidate who is the best suited for their business.

5. Background Checks

Checking backgrounds is important to make sure a candidate is qualified and to keep the workplace safe and legal. There are different ways to do it, like looking at criminal records and checking past jobs. 

They all cost money for things like accessing databases and hiring outside companies. 

Even though it costs, background checks help prevent problems like hiring the wrong person and keeping the workplace safe.

6. Pre-Employment Testing Services

Pre-employment testing services help determine whether candidates have the right skills and personality for the job. 

These tests can include skill tests and personality quizzes, giving insight into how well a candidate might fit in. 

Even though there might be costs for these tests, they can save money by making sure the right person gets hired.

By finding the best candidates early, businesses can save money on turnover and training later on.

7. Existing Employees Referral Bonuses

Offering bonuses to employees who refer good candidates for jobs encourages them to help find new hires. 

The bonus amount can vary, often a percentage of the new person’s salary or a fixed amount. Using employees’ connections can bring in better candidates who fit well with the company. 

Additionally, these bonuses make employees feel good about contributing to the company’s success.

8. Relocation Expenses

When hiring candidates from out of town or out of state, you might need to help them move. This can include;

• Paying for their travel
• Finding a temporary place to stay 
• Arranging for moving services

Even though it costs money, offering to help with relocation can convince top talent to take the job. It attracts more qualified people who might not otherwise consider moving for work.

9. Cost of Onboarding

Employee onboarding costs cover the time and resources spent on getting new hires settled in. 

Companies may have to pay for;

• Orientation
• Paperwork
• Setting up computers

Effective onboarding helps new hires feel welcome and ready to work. The costs can vary based on the job and company size.

10. Employee Job Training

Employee training means giving new hires the skills they need to do their jobs well. 

The training session for a new employee must include;

• Mentoring 
• Online courses
• Hands-on practice

Offering thorough training not only helps employees succeed but also shows you care about their growth. Ongoing sessions can keep top employees happy by giving them chances to move up in the company.

11. Up to Date Website Careers

Keeping your website’s careers page updated is necessary for getting top talent. 

A clear, well-designed careers page makes a good impression and encourages good candidates to apply. 

Make sure it’s easy to find open jobs and has lots of info about each job and your company. 

Moreover, keep it up to date with new job listings and remove old ones. Investing in your website’s careers page helps you find the right people.

12. Compensation in Salary and Benefits

Compensation in the form of a salary and benefits package is important for attracting and keeping good people. Workers’ compensation isn’t just salary; it also includes things like health insurance and vacation time. 

Offering competitive pay and employee benefits (perks) helps attract good candidates and keeps employees happy. Moreover, check regularly and adjust pay to stay competitive and keep good employees. 

13. Workplace Infrastructure

Make sure your workplace has what it needs to have a good working environment. That means giving employees the tools they need, like computers, laptops, and office supplies. 

Moreover, think about things like how the office is set up, lighting, and temperature to make it a nice place to work. 

Updating workplace infrastructure can also mean getting better technology to make work easier and help a team work together. By focusing on the workplace, you can make it a great place to work and keep good employees, which helps your business succeed.

14. Payroll Taxes

Handling payroll taxes is an important aspect of hiring employees. Businesses have to take out the following from employee paychecks;

• Federal income tax
• Social security
• Medicare 

They also need to pay federal and state unemployment taxes. Staying compliant with tax regulations is essential to avoid penalties and maintain financial stability.

15. Insurance and Taxes

Insurance and taxes are necessary costs when hiring employees. Depending on your location and size, you might need to provide health insurance and worker’s compensation. 

Additionally, businesses also have to pay federal and state payroll taxes to follow the law. 

How to Calculate Recruitment Cost?

Businesses need to know how much they’ll spend on new hires. Make sure to familiarize yourself with the strategies listed below for calculating recruitment costs.

1. Start With Cost-Per-Hire Formula

To calculate the cost of recruiting, use the cost-per-hire formula. This formula adds up all the hiring costs and divides them by the number of people hired in a certain time period.

Calculate the hiring cost expenses before starting the employee onboarding process, which includes;

• Job advertising cost
• Recruitment agency fees
• Background checks
• Interview expenses

Then, divide the total by the number of hires made during that time frame. This gives a clear picture of the average cost incurred per hire.

2. Forecast Hiring Volumes

Predicting the number of people you’ll need to hire is important for budgeting recruitment costs correctly. Look at past data to see patterns and guess the number of people you’ll need in the future. 

Think about things like;

• How fast your company is growing
• How many people leave
• When you’re busiest

By estimating hiring volumes, businesses can better use their resources and avoid being surprised by recruitment costs. It also helps them plan how to hire in the future.

3. Estimate All Recruitment Costs

Besides direct expenses, it’s essential to estimate all recruitment costs accurately. This includes costs like;

• Advertising fees 
• Time spent by employees involved in the hiring process
• Background checks
• Pre-employment assessments
• Travel costs for interviews

By accounting for all recruitment costs, businesses can develop a complete understanding of the financial investment required for each hire.

4. Do Some Math

After estimating recruitment costs, squeeze the numbers to determine the total actual cost involved in hiring new employees. 

Sum up all direct and indirect costs identified during the estimation process. 

Use this figure to assess the financial impact of recruitment on the company’s budget. 

Comparing the calculated costs with the allocated recruitment budget helps adjust strategies as needed.

5. Track Your Cost After Recruitment

Once the recruitment process is complete, keep an eye on costs to evaluate the effectiveness of recruitment efforts. 

Things to consider;

• How long it takes to fill a job
• How much it costs per hire
• How good the hires are

By checking these regularly, you can find ways to do better and improve how you hire. Tracking costs after hiring also helps plan budgets and decide how to hire in the future.

What Is The Break-Even Point in Employee Hiring?

To understand the break-even point in employee hiring, we need to consider the investment made in bringing new team members on board and when that investment starts to pay off. Typically, it takes time for a new hire to become fully productive and start contributing to the company’s goals.

Implementing the following strategies can benefit businesses by streamlining the onboarding process and accelerating the reach-even point.

• Online interviews
• Curating a talent pool of past candidates 
• Improving employee retention

These measures reduce hiring costs and ensure that new hires integrate smoothly into the company culture and add value sooner. 

Strategies to Reduce Hiring Employee Cost

For small businesses and individuals, it’s difficult to invest in hiring. Listed below are some onboarding checklist/strategies you should know to reduce new hiring costs

Strategy	Description
Employee Referral Program	Encourage current staff to recommend candidates for job openings. Offer rewards like cash or extra time off for successful referrals, boosting engagement.
Hiring Agency Assistance	Hire a specialized agency to handle recruitment. This can speed up the process and save costs in the long run, allowing focus on other important tasks.
Careers Portal Development	Create a user-friendly Careers Portal on your website. Showcase company culture, values, and job opportunities to attract potential candidates and cut down on recruitment expenses.
Social Media Recruitment	Utilize social media platforms such as LinkedIn, Facebook, and Twitter for cost-effective job postings and candidate outreach, using targeted ads to identify suitable candidates and engaging directly to evaluate cultural fit without significant financial outlay.
Talent Pool Utilization	Maintaining a record of impressive past interviewees streamlines future hiring, saving time and money, while fostering connections with potential candidates facilitates faster acceptances and enhances the hiring process.
Online Interviews	Utilize video calls for interviews to cut costs and time, eliminating travel requirements, enabling flexible scheduling, and improving candidate selection, while also promoting inclusivity.
Employee Retention Boost	To keep employees, make the workplace better, pay well, offer growth, and communicate openly, which saves money and builds loyalty.

Is Hiring The Right Employee Saves Money? 

Hiring the right employee can save a company money in many ways. 

The total cost of hiring includes more than just the salary. It involves the total cost of recruiting, training, and onboarding new hires. 

When you fill an open position with a qualified candidate, you avoid the real cost of poor performance and high turnover. 

Lost productivity occurs when a role remains vacant or is filled by someone who isn’t a good fit. 

Outsourcing might seem cheaper, but it often leads to lost productivity and doesn’t build the same team spirit as having in-person staff. 

Happy current employees are more productive, reducing the need for constant hiring and training. 

In short, the right hire reduces overall expenses and keeps the team running smoothly.

Can Onboarding Software Save Time and Money?

Absolutely, using onboarding software is a smart move for businesses to make their hiring process smoother and save time and money. 

HR can focus on finding good people when onboarding software takes care of tasks like; 

• Paperwork
• Scheduling training
• Welcoming new employees 

Plus, it ensures that new hires feel supported right from the start. It can keep them engaged and stick around longer, saving the company from employee turnover costs.

It doesn’t just make things easier it also helps companies follow rules and policies. It tracks certifications, manages documents, and ensures everyone gets the training they need, so the company stays compliant and avoids fines.

Frequently Asked Questions

Final Thoughts

In conclusion, the process of hiring a new employee in 2024 involves multifaceted costs beyond just the annual salary, including;

• Recruitment fees
• HR processing
• Training
• Benefits

With the average cost per hire estimated at $4,700, as per the Society for Human Resource Management (SHRM), and potentially much higher for specialized roles, businesses must carefully consider their financial investment in acquiring talent.