The costs of hiring a new employee

November 08, 2019

Depending on when you do it, hiring a new employee may help your business grow or it might set the business back.

 

For business owners, the decision to hire is complex. Can you afford to? Can you afford not to? Before you decide, you will need to assess the costs of a new hire.

Here are some guidelines to remain objective, calculate potential costs and help consider all your options.

 

When to hire employees

You might decide to hire a new employee when:

  • You currently have more work than you can handle. 
  • You want to accept more work in the future but can’t, unless you hire new help. 
  • You want to offset your current workload by sharing it with a new employee.

 

Determine the health of your bottom line

If any of the above apply, you will want to estimate the costs associated with hiring an employee and how those costs will affect your bottom line. In fact, the costs start adding up before you sign the first paycheck.

  • Recruitment: Whether you post a free online ad or use a recruiter, the process of creating a job description, posting ads, reading resumes and interviewing takes time. That means time away from other work. 
  • Salary: Calculate the salary or hourly rate you are willing to pay. Take into consideration the competitiveness of the job market and typical pay rates in your area. 
  • Taxes: Figure the cost of federal and state unemployment taxes, plus the employer-paid portion of Social Security and Medicare. 
  • Benefits: Health care is a major concern for potential employees and a major expense for you. In addition, consider the impact of vacation time and sick leave, employee savings or retirement plans, professional organizations, etc.
  • Job-specific costs: What will a new hire need for the job? Calculate expenses, such as office supplies, uniforms, computers and office space. Don’t forget to include software licenses, phone plans and work-related vehicles. Worker compensation insurance varies depending on the industry and type of job. 
  • Training: Even the most qualified new hire will need time to adapt to your process and culture. It is likely that some specialized training will be required, too. The time it takes for a new hire to get up to speed can range from a few days to weeks or months. 
  • ROI: How long will it take for your new hire to make a difference in your bottom line? This is more easily measured in a sales position, but for any new hire, consider the impact he or she will make in the next month, six months and 12 months.

 

Consider different remedies

Before you set the hiring process in motion, think strategically about what you want this new hire to accomplish. Write a job description and be as specific as possible. Could a part-time employee or contractor fill this role? Is it a year-round job, or do you just need extra help getting through a seasonal uptick? Could the job duties be divided among existing employees?

You should also consider whether hiring a new employee fits in with the long-term vision for your company. How many employees can you comfortably manage?

 

Avoid the side effects of understaffing

Despite the costs of hiring, the costs of not hiring may be greater. If you prefer your business to remain the size it is, then hiring a new employee may not be a good idea. The potential long-term effects of not hiring include:

  1. Limiting your growth 
  2. Damaging the morale of employees who are already overworked 
  3. Suffering burnout from managing too much 
  4. Letting customer service slide
  5. Seeing quality suffer because current staff must work faster or take shortcuts.
     

In addition, you may find you don’t have enough time to focus on the big picture because you are continually putting out fires caused by insufficient support.

Although the question of if, or when, to hire employees may include numerous costs and considerations, which may be daunting at first, it might be worth the investment for the sake of long-term growth.

 

There’s always more to learn about managing your business, so please continue reading at usbank.com/small-business.

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