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How Much Does it Cost to Hire a New Employee? Lots.

By Casey C. Sullivan, Esq. | Last updated on

If you're looking to hire a new employee, be aware that salary is just the start of the costs. There are plenty of associated, non-wage costs to bringing someone new to your firm. From taxes and insurance, to simply finding a new location to put someone, the costs of hiring a new employee can vary wildly.

If you're not anticipating them, these costs can be unexpected. But they're certainly not indeterminable and should be included in any plans to hire. Here are some factors to take into account when looking at the real cost of a new employee.

The Quick Answer

Here's the short answer, but take it with a grain of salt: on average, it costs $4,000, beyond salary and wages, to hire an employee. The $4,000 number comes from the U.C. Berkeley Institute for Research on Labor and Employment, which found that low skill, manual laborers can typically be replaced for around $2,000, while managerial and professional employees cost near $7,000.

These numbers don't mean much, though, if you don't take into account the specifics of your situation.

Are You New to This, or a Pro?

Guess what? Economies of scale apply to employment, too. Your first hire will be the most expensive, but the cost will decrease, sometimes significantly, as you grow. The hours put in to administrative tasks surrounding a new hire are one of the main non-wage expenses, and they require less time the more employees you've hired.

Administrative Costs and Taxes

Aside from salary, the biggest expenses related to new employees come from overhead and taxes. You'll be expected to contribute 7.65 percent of the employee's income, beyond their salary, as the employer's share of FICA taxes.

Then there's admin. Administration tasks, the costs of which are measured by the hours you devote to them, make up 2.3 percent of the total costs of hiring, according to a report by the Center for Economics and Business Research. That's just for the initial on-boarding. Regular administration accounts for just over 8 percent of non-wage costs. Add payroll processing onto that for another 4 percent.

Insurance, Benefits and Other Costs

When calculating how much a new employee will cost, include any contributions you'll be making to their health care, for example. You'll also want to take into account the cost of unemployment insurance and, where required, disability insurance.

You can control, and therefore predict, the costs of many benefits offered to your employees. You should factor in retirement contributions, planned bonuses, and other perks. But there are also the unplanned benefits -- will your employee max out sick days, take advantage of FMLA leave, or sue you? Those sorts of expenses can be highly unpredictable.

Before beginning your search for employees, take some time to figure out the real cost of a new hire. That way, you'll know just how great a candidate will need to seem in order to be "worth it."

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