The Overarching Costs of Hiring an Employee

Costs Associated with Hiring Employees

In order for a business to run effectively and efficiently, it must hire employees to perform labor. In fact, employees are considered a business's greatest asset and investment.

The Society for Human Resource Management places the average cost per hire at $4,129. Alternatively, the National Association of Colleges and Employers estimates the costs associated with hiring a new employee for small businesses with under 500 employees at an average of $7,645.

Whether you are a small business owner or a human resources management professional at a large corporation, it is crucial to understand the costs associated with hiring new employees including financing-

1. Hiring Professionals

A significant cost affiliated with the new employee hiring process is the labor costs of your business's hiring team. While a very small business may set the business owner in charge of hiring new employees, larger businesses generally have an entire human resources management team permanently on staff.

Studies estimate that small business owners dedicate around 40% of their work hours to non-income generating tasks, including hiring new employees for their company. Outsourcing the hiring process also does not run cheap, with an estimated $16,000 a year per employee placement.

2. Recruitment

Job boards and college career fairs are two main talent acquisition methods that HR professionals commonly use to locate top talent applicants for an open position. In fact, 75% of all employers in the United States report that they visit college career fairs as part of their recruitment process.

The cost per career fair for employers can range between $125-225, even before factoring in accommodations or travel fees. On average, the cost to post job ads online for 30 days is around $300, with some sites offering discounts for multiple posts.

Considering that many employers post job ads across various online employment sites and attend multiple college career fairs each year, these recruitment costs can accumulate quickly. Best practices for decreasing hiring costs long term include the creation and maintenance of a careers page on your company website.

3. Screening

Many business owners regard employee background checks as a non-negotiable component of the hiring process. Depending on how much information is provided, background checks can range between $5-80 per applicant.

4. Onboarding and Training

Research demonstrates that depending on the complexity of a role it may require 8-26 weeks for a new employee to reach their optimal productivity level. During those initial weeks or months, a new hire is likely costing your company more money than they are making it.

To get an employee up to speed a business spends an average of 1-2.5% of its total revenue. Another study found that employees spend about 32 hours per year on training.

When employee retention rates are low and employee turnover is high, these onboarding and training costs can devastate a business's profitability. To combat an employee retention issue businesses should heavily invest in onboarding and training initiatives, which will additionally decrease the amount of time it takes for a new hire to acclimate to their role.

5. Salaries

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The salary range for a new employee is dependent on their job experience, education, and of course the specific position they apply for. In order to attract top talent applicants, the salary range offered for a position should be equal to or higher than the average salary range for that position in your geographical area.

A base salary is not a reflection of the true cost of hiring a new employee as it does not reflect the extra costs an employer may incur including-

  • Health insurance
  • Social security
  • Payroll taxes
  • Work life balance perks
  • Paid time off
  • Stock matching
In fact, employer costs are 125-140% higher than the base salary figure an employee receives. Therefore, if an employee has a base salary of $50,000, the employer will pay between $62,500- $70,000 per year to retain that employee.

Employees expect gradual raises throughout their careers, raises are allocated at an average rate of 2.7% per year on staff. Calculating the true cost of hiring a new employee may seem overwhelming, but it is well worth the ability to keep your business's labor costs under control long term.


  • Depending on the source, the average estimated cost of hiring a new employee ranges from $4,000 to $7,645.
  • A small business may have a business owner in charge of the hiring process while a larger company will generally have a human resource management department.
  • Job posts on third party websites and attendance at college career fairs are both recruitment methods that cost employers several hundred dollars on average.
  • Background checks cost anywhere from $5-80 per employee depending on how comprehensive they are.
  • A new hire takes anywhere from 8- 26 weeks to reach peak productivity levels.
  • The total cost of hiring a new employee is 1.25-1.4 times base salary estimates, including factors such as employment taxes and health insurance benefits.

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