The Actual Cost of Hiring a New Employee

It can be very difficult to pinpoint a precise cost for hiring a new employee, because recruitment is a complex process. However, there are some general guidelines you can use to make an educated guess.

You need to know the required skills (what they must contribute from day one and what you can train them to do) before you can figure out a salary range. Make your salary too low, and you won’t get the skilled and experienced candidates you need. Make it too high, and you’ll overpay your new employee and you may anger your lesser-paid employees working in similar jobs.

If you use an internal recruiter, then the costs include their salary for any time they work to fill this position. If you hire an outside recruiter, you will also incur heavy costs. Top Echelon, which makes recruiting software, found the average costs for a recruiter to find your new hire:

  • Recruiting fees average: $20,283

  • Average fee percentage: 10-20%

  • Average starting salary: $93,407

The estimated costs:

  • You can minimize your internal costs more easily. But, when you calculate the time the hiring manager, recruiter, and the employees on the hiring committee spend, you’re investing a lot of salary dollars into finding the perfect employee. Then, if you post the job on a job board you’ll pay for that as well. Handled internally, you can expect to pay around $4000 in recruiting costs for a midrange position.

  • One study estimated that you’ll spend 38% of an annual salary to train a new hire. While you say that you will hire an employee who can “hit the ground running,” you will always have training costs. When the position is a new one in your organization, you may experience even higher training costs. This is because no previous employee who left behind a set of instructions for how to do the job existed.

After reading these estimated costs to hire a new employee, you might think that your business­—especially a small business—can’t afford to grow. But, you also can’t afford to stay where you are. If you have the business to support a new person’s salary, and a new person will help your company succeed, don’t panic about the costs.

Here is why you should invest in hiring a new employee when needed:

  • Your salaried exempt employees will earn the same amount of money, even if they have to work more hours to train the new hire—which is good for your pocketbook but can harm employee morale. Make sure you’re not overburdening hiring managers or team leads who train the new hires by hiring too many people at the same time.

  • Take a look at your recruiting techniques to make sure you’re using the most efficient and cost-effective methods. For example, you may find that offering a $1000 referral bonus lands you great candidates. According to the Society for Human Resource Management, “30% of all hires overall in 2016 and 45% of internal hires,” came from employee referrals. This recruiting method also saves you the cost of hiring a recruiter.

  • If you’re paying a large amount of money for a subscription to a job board, make sure you’re actually getting quality candidates who saw the posting on this board. If you’re not, stop.

  • New hire costs are high, but the costs are worthwhile to find a great new person to help your company succeed. Plan carefully so that you truly hire for the skills you’ll need today and tomorrow, and don’t wait until you’re desperate to start the recruiting process. You likely won’t save much money recruiting quickly, and you may end up with a less qualified candidate.

About RedBeard Talent 

Both leading industry brands such as Accor Hotels and OTA Insight as well as talent in APAC, EU and the US are working with us, and so should you. We’re your colleagues and mentors when it comes to recruitment and your career. Excited to break boundaries together?

For Employers:

Using our innovative approach with the latest smart technologies, we have achieved a 95% employee retention rate for our clients, 10 working days faster in filling positions than any traditional recruitment agency with 30% more in monetary savings, and accelerated work engagement significantly. 

For Candidates:

We also work with professionals to showcase their best talents and skills through our transparent, one-on-one mentoring and fully tailored resources. We are so committed to helping you advance your career that our fastest candidate received a promotion within 3 months from Business Development Manager to Assistant Director of Sales & Marketing at the age of 22. 

More than anything, when we work with you, we take pride in providing an exceptional 6-star service that is transparent and meaningful to serve you.

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