How to work out the cost of hiring new employees

You’ve done it. Your business is up, running and starting to thrive. Now you realise that one pair of hands isn’t enough and you’re ready to bring someone else on board. Congratulations! But before you post that job ad, you’ll need to work out what a new hire will really cost you.

What we'll cover

• Wages
• Workspace
• Equipment
• Administration
• Employment law
• The hiring process.

 

Covering the costs

 

Like it or not, the true cost of employing someone stretches well beyond what you pay them. To keep your business going, you'll need sufficient sales to cover the additional expenses your new employee brings as well as enough cash to pay them.

 

If you haven't factored in the full costs involved, you could be in for a bumpy ride. In this help guide we summarise what to consider.

Wage costs

You'll most likely have an idea of a new hire's base salary, but what about all the associated costs? Annual leave will be built in, so that means you might be paying for just approximately 48 weeks of work each year (leave plus public holidays). Then there's sick and carer’s leave – potentially another 10 days of work missed – superannuation and other costs such as maternity pay.

 

If you can't afford all this, stop right now. Regardless of how your business is doing, an employee's earnings need to hit their account on time, as agreed. The ebbs and flows of business cannot be allowed to disrupt that security.

 

Make sure you've got the national minimum wage covered, too.

Bigger digs

Whether you're taking on just one new hire or a small team, you don't want everyone sitting on top of each other at the end of your recruitment drive. This may mean a new workspace. It could be an extra desk in your home office, or perhaps a bigger kitchen for your new pizza chef, or a waiting area for your incoming receptionist to seat people in. Whichever applies, expansion comes with a price, so make sure you know how much.

 

Alternatively, your new employee may be able to work from home some or all of the time. Or you could implement 'hot desking' with employees sharing office space on the days they come in. Offering flexible working can also improve employee retention.

New gear

Just as you need space for your new staff, you should think about the equipment they'll need to do their new jobs, such as computers, tools and company vehicles. These must all be factored in, as well as the cost of insuring and maintaining them. Pay special attention to new recruits with accessibility needs, too – you might need to make adjustments to your workplace.

Staying on top of admin

Do you have the time to handle the extra administrative load that comes with being an employer? You'll need to process all the onboarding paperwork for your new hire, set up payroll - either via an accountant or using online tools – and get to grips with your HR and Fair Work obligations. These additional tasks can eat into the time you have to generate the sales and revenue you need to prosper.

Staying on the right side of the law

You'll have a host of tax responsibilities when you hire people for your business, including:  

 

• Pay as you go (PAYG) tax obligations
• Fringe benefits tax.
   

You need to be clear about this, so it might be worth engaging with an accountant, if you don't already have one. 

 

You'll also need to take out workers' compensation insurance for your employees, in case they're injured while at work.

The hiring process

If you do hire, you want to get the best candidate, and that means either investing a significant amount of your time (and the costs that come with this) in finding the right fit, or paying for a recruitment agency or independent hiring manager. Think about the resources you'll need to:  

 

• Write a job description
• Advertise the post on job boards and websites
• Hire an agency to conduct the search for you
• Chat with people about the job and your business
• Communicate with candidates
• Screen and interview applicants.

 

All up, cost-per-hire estimates can range significantly depending on if you recruit through a job board or at the higher end via a recruitment agency. And what happens afterwards? Have you considered training? What about employee development? Will they be part of reward and recognition programs?

 

Don't let these costs sneak up on you, use our cost of an employee calculator (XLS 116KB) to help you understand the true total cost of a new employee.