How Much Does It Cost to Hire an Employee?

How Much Does It Cost to Hire an Employee?

  • The average cost of hiring an employee is around $4,000, but it varies by role.
  • Hiring a new employee involves multiple resources across the recruiting, interviewing, onboarding and training stages.
  • There are multiple ways to reduce the cost of hiring an employee, but the best resource is to improve employee retention and keep turnover low.
  • This article is for business owners, CEOs, hiring managers and human resources managers looking to hire new employees.

The average cost of hiring an employee is around $4,000, according to a Glassdoor study. However, various factors could impact that number, such as the size and location of your business, the role you’re hiring for, and the industry in which you operate. 

Hiring an employee is one of the most important investments that any business can make, and it’s not a process that should be rushed. But if you know what to look for and how to bring in the right kind of help at the right stage of the hiring process, you can easily streamline all of your recruitment and retention efforts – for the lowest possible cost.

Let’s take a look at the costs any organization can expect throughout the hiring process.

Typical costs of hiring employees

Here is a short list of factors that can impact the costs of recruiting, hiring and onboarding a new employee:

  • HR team
  • External recruiters
  • Job posting
  • Candidate screening
  • Background checks
  • Compensation
  • Training
  • Corporate equipment and credentials
  • Referrals

HR team

A human resources team is an important asset for any recruiting efforts. A qualified HR specialist can handle a wide variety of responsibilities, including drafting corporate policies, setting a salary range, writing a job description, and training staff. 

While a dedicated HR representative can help with recruiting and retaining top talent, it comes at a cost. The average salary of an HR manager ranges from $100,000 to $140,000 per year, and that’s before the cost of benefits and onboarding kicks in. 

TipTip: Many small businesses can manage their staff without a dedicated HR professional. Consider using top HR software or contracting with an HR outsourcing service to manage your small business’s needs before hiring an internal HR team.

External recruiters

For smaller businesses without an HR department, external recruiters are a common resource to facilitate hiring. An external recruiter or recruiting agency often has a talent pool of qualified and experienced candidates to draw upon. And if that talent pool doesn’t quite have what you’re looking for, an external recruiter has an array of tools and resources to help hone in on the right employees. 

However, recruiting agencies have multiple pricing structures, which can quickly add up regardless of the position you’re seeking to fill. Whether the fee is a percentage of a role’s annual salary, retainer-based, or simply a flat rate, it can add significantly to the overall cost of finding and onboarding a new team member.

TipTip: Learn how to get ahead of the curve in recruiting and hire in the digital age with these modern recruitment trends.

Job posting

Writing a compelling job description is no small task, and it can make the difference between attracting a top candidate or just another person who needs a job. A job description that captivates all the right types of people takes time, skill and experience to produce. Once your internal teams have approved a description, it’s time to look at posting it on multiple job boards. 

There are several free options to post a new opportunity on platforms like LinkedIn and ZipRecruiter, but the free or trial versions offer only a small selection of features to help you find the right people. To get the most out of a job board, you’ll usually need a paid service. For example, ZipRecruiter offers a paid subscription starting at $299 per month, while LinkedIn offers a pay-per-click model to give you more control of your budget. 

Candidate screening

Once you’ve successfully received a nice selection of applications, you now face the most time-consuming part of the hiring process, starting with candidate screening. Sorting through resumes to find a potential employee can take some time. Once you’ve found qualified applicants with the right experience and results, you can schedule initial screening calls to make sure the applicants have all the soft skills they need for the conversations with the hiring manager and the team.

Background checks

After you’ve found the right candidate, it’s time to run a background check on that new hire. A background check verifies basic information like education and work experience, but more importantly, it checks for past identities or any criminal history to make sure your new hire is as good as they seem. [Read related article: How to Choose the Right Background Check Service]

Compensation

One of the more obvious costs associated with hiring is making sure your employee is getting a fair wage. However, all the benefits you offer to your staff add to the overall expense. Benefits like health insurance, retirement plans and employee growth initiatives impact your budget, but the total amount will depend on the level of perks you provide.

Key TakeawayFYI: A competitive compensation plan is one of the most effective ways to keep employees satisfied and focused. Offering all the right perks, benefits and salary is an easy formula to follow. To learn more, read our step-by-step compensation plan guide.

Training

According to a Training Magazine report, companies spend an average of 46.7 hours to train an employee, and it costs an additional $986 in training expenses. But those expenditures are worth it, as the training you provide gets new employees up to speed quickly and prepares them to make those key contributions that help your business get ahead. 

Corporate equipment and credentials

Every employee needs basic equipment in order to succeed, such as desks, computers and telephones. This equipment is an added expense of the onboarding process. Further, your IT managers will need to install corporate software or create employee accounts to ensure compliance with security policies. 

Referrals

Creating an effective referral program isn’t easy, but the high-quality candidates it generates make it a great recruiting tool for many organizations. In fact, according to a study by the employee referral service ERIN, a referral is four times more likely than other candidates to be hired. By relying on the network of your employees, you create a great recruiting tool to find top-tier candidates, but the final expense is entirely dependent on the incentives being awarded, along with any development costs for the program. 

The break-even point

Now that you’ve made the investment on an employee, how long should you expect to wait before they start making meaningful contributions? According to a survey of 210 CEOs conducted by Harvard Business School, business owners expect an employee to reach the break-even point six months into the job. After six months, an employee should have enough training and institutional knowledge to add value to an organization. 

How to reduce hiring costs

You can keep your hiring costs down and recoup the expenses sooner by following these tips:

  1. Create an internal referral program.
  2. Get professional help.
  3. Build an effective careers portal.
  4. Recruit over social media.
  5. Curate a talent pool.
  6. Conduct interviews online.
  7. Improve employee retention.

1. Create an internal referral program.

Starting a referral program within a business isn’t an easy task, but it’s one that’s well worth the effort. Because your trusted workforce is able to recommend people they trust, it helps you find reliable resources a bit faster than you would with a regular job board. And because internal referrals can help you find the right candidates in a fraction of the time, the associated cost is much lower. Rather than paying $300 per month for however long it takes to find qualified applicants, organizations incentivize their workforce with bonuses ranging from $50 for junior roles to $7,000 for specialized, in-demand positions.

TipTip: Learn about the best practices and guidelines to establish a referral program for your company with our guide on how to create a great employee referral program.

2. Get professional help.

Depending on how many roles you’re hiring for, you may want to investigate a professional employer organization (PEO), especially if it’s a struggle to scale your workforce as your business grows. A PEO is usually equipped with specialized headhunters, HR managers, and dedicated HR software to help track candidates, manage interviews, and onboard new hires. 

Key TakeawayFYI: You can learn about some top PEOs in our Oasis review and our Justworks review. Each PEO offers different levels of service and provides compliant ways to recruit talent. Check out our guide to learn more about the benefits of a PEO.

3. Build an effective careers portal.

Even with a successful referral program and professional help, it never hurts to get back to basics. And with a careers portal hosted on your corporate site, you get a home base to post all of your open positions, as well as an area to showcase corporate lifestyle and values to make your business something that people strive to be a part of. Several job boards require you to link back to your corporate portals to apply to a position anyway, so posting a compelling job description on your official site is always a good step, regardless of any other recruiting or hiring efforts you may have started.

4. Recruit over social media.

Sometimes it’s effective to cut out the middleman in recruiting. With a healthy social media presence, you can promote open positions on your own, without using a job board or hiring service at all. However, the results aren’t guaranteed. Because social media isn’t equipped with all the recruiting and hiring tools you’d find with a PEO, it doesn’t have the same vetting services to assess job applicants. But those responding to your corporate recruiting post on social media are already engaged with your company’s activity, which could lead to a passionate new employee who’s familiar with your values.

TipTip: Social media can also give you some insights into a potential employee’s personality and professionalism, making it a public and effective way of screening talent. Learn how to screen job candidates on social media before their interviews.

5. Curate a talent pool.

There are usually several capable and exciting prospects when you’re hiring a new employee, but you can’t hire them all. When that happens, it’s common for recruiters to set aside candidates for future opportunities. With a talent pool of past interviewees who made a positive impression but didn’t make the final cut, you can start with a roster of qualified candidates you’ve already screened. This cuts down on the duration of the hiring process and gives you a head start on identifying the right person for the job. 

6. Improve employee retention.

The most impactful thing that any organization can do to keep hiring costs down is to prevent turnover in the first place. Employee Benefit News reports that it can cost as much as 33% of an employee’s salary to replace them, and the loss goes beyond the financial aspect. When an employee leaves, they take with them the wealth of knowledge that they’ve accrued over their tenure, which could be a substantial detriment to the company. [Read related article: How to Create a Stress-Free Work Environment]

A toxic work environment, questionable management, exploitative business practices and low compensation could all lead to the departure of a valued team member. To keep your team satisfied and making critical contributions, you need a team of professionals who are trained and up to date with all business policies and practices. It requires cooperation between your business’s leadership and HR department to build a sustainable work environment and policies to support your entire team. 

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