Cost of Hiring a New Employee for Your Small Business

March 3, 2014 | By | Reply More

Hiring a New EmployeeYour small business needs to grow big fast, and you want a couple of extra hands. You cannot work 24×7, neither are you a jack of all trades. For your business to succeed you need rightly skilled people who can manage work as effectively as you can. Wouldn’t it be just great if you could clone yourself?

Do you know the actual cost that you would have to incur if you hire a full-time in-house employee? For small and medium business owners, payroll and employee related expenses run up to 60-70% of their operating costs. It’s time to take out your calculators and find out the actual money spent in hiring and retaining a full-time in-house employee.

As per the recent CNN small business article, Jim Garland, who owns a corporate aircraft cleaning and support services company, says, “A $14 per hour worker has a true cost of $19.63 per hour, or about 40% more than base pay.”

As a general business rule, employees cost 25-40% more than their base pay.

Why is this so?

Cost of Hiring Additional Employee

Add the following to get the actual expense of a new employee:

Basic salary:

The salary at which you decide to keep a full-time employee.

Fixed taxes and insurance:

While state income taxes vary significantly, federal taxes are standard: Social Security tax is 12.4% on the first $106,800 of earnings, and Medicare taxes run another 2.9% of all wages. Employers also have to pay a federal unemployment insurance tax of 6.2% on the first $7,000 of each employee’s wages. Add to this, your state specific taxes.

Perks and benefits:

Uniforms, paid time off, group life insurance, travel allowance, day care service, and many more.

Office equipment:

Office space rent, office furniture, equipment/computer, stationery, coffee machine, and maintenance of all of these.

Soft expenses:

Time spent in training a new hire, productivity loss till the time the new hire is contributing well to your business, unproductive office hours, employee management, HR expenses, employee retention/motivation initiatives, and many other expenses specific to the nature of your business.

Should You Hire?

There are jobs for which you absolutely must hire in-house employees. These tasks cannot be outsourced and it would be great if you hire the best talent for these business critical tasks. Your key employees must excel at what they do for your business and this investment will go a long way for you. But, there are many other tasks for which you need not hire in-house resources.

These include: call handling, customer services, human resource management, payroll management, document management, marketing, designing, IT support, bookkeeping, and many other back-office tasks. If you decide to outsource, you just need to shell out the basic salary and a little bit of your time initially.

The basic salary of outsourced employee would come out to be cheaper too. Businesses of all sizes are taking advantage and saving on their overheads tremendously.
Recommended Books on Hiring a New Employee:


Gourab Nanda

Gourab Nanda of MyBusinessAssistant, a full service virtual assistant company offers a unique Right Shore Virtual Business Center solution to help small businesses increase focus on their core business while reducing overhead expenses.

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Cost of Hiring a New Employee for Your Small Business
Do you know the actual cost that you would have to incur if you hire a full-time in-house employee? Learn the actual expense of hiring a new employee for your small business.
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Category: Managing Employees

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