Breaking down the costs of hiring a new employee
Hiring a new employee is an exciting step for any business, but it is essential to have a clear understanding of the costs involved. Numerous factors to consider, from recruitment to training, have the potential to eat your budget. In this guide, we will cover the key cost components of hiring, explore how to cut down on expenses, and how Global Squirrels can help you do this while keeping your budget in check.
There are direct and indirect costs of hiring a new employee. The average cost per hire is nearly $4,700, and most businesses estimate the total cost can be three to four times the position’s salary, according to the Society for Human Resource Management (SHRM). The hard costs of hiring a new employee include job advertisements, recruitment agency fees, and onboarding, which are about 30% to 40% of the total. The soft costs, which are the remaining 60% to 70%, are the time managers and leaders spend considering applications, interviewing, and making final hiring decisions. Such efforts not only add to the financial burden but also take the focus away from the key organizational goals, thereby reducing productivity and return on investment (ROI).
Cost of training
The Association for Talent Development’s 2022 State of the Industry report shows that organizations spent an average of $1,280 per employee on workplace learning in 2021, up slightly from $1,267 in 2020. This investment shows that employee development is still a key priority despite the economic challenges caused by the pandemic. Content distribution also saw a significant shift, with 20% of learning resources dedicated to managers and supervisors (up 7% from last year). This change is consistent with the demand for training that prepares leaders to lead hybrid teams, as by early 2022, 69% of managers were leading hybrid workers.
Employee salary
Total employer compensation costs in private industry, on average, were $43.94 per hour in June 2024, with wages and salaries comprising the most significant share at $30.90 per hour (70.3% of total costs). Benefits contributed $13.04 an hour, or 29.7%, which includes the extra costs that employers pay beyond direct pay. They include paid leave, supplemental pay, retirement and savings plans, and legally required benefits like Social Security and unemployment insurance. The fact that employers have to invest so much to attract and keep talent in the private sector is evidenced by this balance between wages and benefits.
Compensation costs can differ widely from one establishment size and industry type to another within the private industry. For instance, smaller establishments with fewer than 50 employees had lower average compensation costs, while larger establishments with 500 or more employees had much higher costs. These variations underline the necessity of strategic workforce planning and cost management in organizations that want to stay competitive and financially sustainable in various market conditions.
Other factors to consider that could potentially affect your budget
1. Recruitment marketing
In addition to job boards, hiring costs can go up from recruitment marketing efforts like social media ads, company career pages, and promotional videos. In competitive industries, these strategies are key to building your employer brand and luring top talent, but they need to be funded and done well.
2. Turnover rates
A high employee turnover can eat up a large chunk of your hiring budget. If you are replacing employees often, you’re spending more on job postings, interviews, and training. If you understand and address the reasons for turnover, you can cut these costs, but be prepared to absorb the financial impact of turnover when you budget for recruitment.
3. Hiring for hard-to-fill roles
Some positions, in particular those that need a very specific skill set or a great deal of experience, are more expensive and time-consuming to fill. It may also need extra resources, like recruiting specialized agencies, higher pay, or sign-on bonuses, which should be calculated while setting your hiring budget.
4. Legal and compliance costs
The hiring budget can also be spent on compliance with labor laws, industry regulations, and internal policies. To ensure your recruitment process is legal, you may need legal consultations, background checks, and documentation to protect yourself from potential fines or legal problems down the road.
Break-even point
The break-even point is when a business spends exactly as much as it has earned, as stated by the Small Business Administration. Hiring new employees also has its own break-even point. Due to the fast-paced and competitive nature of the market, the break-even point for new managers has shortened a lot in mid-level businesses. New leaders would traditionally be given a six-month grace period to settle in and prove themselves. However, dramatically reduced, many organizations now expect managers to make measurable contributions in the first 90 days. A survey of 210 CEOs and presidents indicated that new leaders can expect to be at their break-even point, having delivered value as much as, or more than, the resources they have used within six months. This shift is a fast launchpad for new managers to learn fast, drive fast, and deliver high performance out of the box.
How does Global Squirrels help you hire employees most cost-effectively?
Global Squrirels is a staffing and payrolling platform that allows you to hire top talent in the simplest manner from the country of your choice. Along with hiring, our platform also helps you manage your employees with administrative functions such as performance management, payroll & benefits management, timesheet and task management, and compliance with local and international labor laws.
Our platform allows you to hire top talent while saving you costs. This is done with the help of our flat pricing model, where you only pay for the payroll cost and a flat platform fee. Unlike other BPOs that charge 50% more than the true value, Global Squirrels saves you 20% on hiring costs.
Let us look at some of the plans that Global Squirrels offers:
Our Purple plan simplifies the onboarding of candidates you have already sourced or helps transition your freelancer into a full-time employee. Once onboarding begins, our platform efficiently handles all administrative tasks, including performance tracking, payroll & benefits management, task and timesheet management, and ensuring compliance with local and international labor and tax regulations. Additionally, we generate offer letters for a seamless start.
The Orange Plan goes a step further by assisting in hiring employees tailored to your specific business needs. After signing up, our platform will provide details such as job title, description, employment type (part-time or full-time), desired educational background, skills, and the country you wish to hire from. Within 2 to 5 business days, you’ll receive pre-screened, background-checked profiles ready for interviews. Once you’ve selected your candidates, our platform takes over, managing all HR functions, including payroll, compliance, and more, ensuring a smooth hiring process from start to finish.
Are you ready to save up to 20% of hiring costs? Request a demo today!