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.

Learn about U.S. Bank

Related content

What financial advice would you give your younger self?

10 ways to increase your home’s curb appeal

Car shopping: Buying versus leasing your next vehicle

What you should know about buying a car

Should you buy a house that’s still under construction?

5 things to avoid that can devalue your home

9 simple ways to save

3 awkward situations Zelle can help avoid

Here’s how to create a budget for yourself

Money Moments: How to manage your finances after a divorce

Money Moments: 8 dos and don’ts for saving money in your 30s

Travel for less: Smart (not cheap) ways to spend less on your next trip

Understanding guardianship and power of attorney in banking

What’s in your emergency fund?

What you need to know about renting

From LLC to S-corp: Choosing a small business entity

6 things to know about long-term care insurance cost and benefits

Do I need a financial advisor?

How to reward employees and teams who perform well

6 tips for trust fund distribution to beneficiaries

Preparing for retirement: 8 steps to take

How to build wealth at any age

How to manage your money: 7 tips to improve your finances

LGBTQ+ financial planning tips

Investment strategies by age

Should I itemize my taxes?

Your 5-step guide to financial planning

What is Medicare? Understanding your coverage options

Military homeownership: Your guide to resources, financing and more

Home buying myths: Realities of owning a home

5 financial goals for the new year

Retirement savings by age

Annual insurance policy review checklist

How I did it: Turned my side hustle into a full-time job

Retirement plan options for the self-employed

5 reasons why couples may have separate bank accounts

It's possible: 7 tips for breaking the spending cycle

Closing on a house checklist for buyers

How to plan and save for adoption and in vitro fertility treatment costs

Multiple accounts can make it easier to follow a monthly budget

Is it time to get a shared bank account with your partner?

Don’t underestimate the importance of balancing your checking account

7 steps to keep your personal and business finances separate

Which is better: Combining bank accounts before marriage — or after?

30-day adulting challenge: Financial wellness tasks to complete in a month

Estate planning checklist: 8 steps to secure your legacy

8 steps to choosing a health insurance plan

Key milestone ages as you near and start retirement

How I did it: Bought a home without a 20 percent down payment

Estate planning documents: Living trusts vs. will vs. living will

Why estate planning is important

How a Health Savings Account (HSA) can benefit your retirement plan

Year-end financial checklist

Trends in economics, immigration and mobility policy

Putting home ownership within reach for a diverse workforce

Finance or operating lease? Deciphering the legalese of equipment finance

Buying or leasing? Questions to ask before signing a contract

Insource or outsource? 10 considerations

The secret to successful service provider integration

Safeguarding the payment experience through contactless

COVID-19 safety recommendations: Are you ready to reopen?

The surprising truth about corporate cards

Unexpected cost savings may be hiding in your payment strategy

Tapping into indirect compensation to recruit foreign talent

Why other lenders may be reaching out to your employees

High-cost housing and down payment options in relocation

Work flexibility crucial as municipalities return to office

Overcoming the 3 key challenges of a lump sum relocation program

Crypto + Relo: Mobility industry impacts

For today's relocating home buyers, time and money are everything

How to sell your business without emotions getting in the way

Empowering team members

5 steps to take before transitioning your business

10 tips on how to run a successful family business

Talent acquisition 101: Building a small business dream team

Costs to consider when starting a business

How to test new business ideas

The role of ethics in the hiring process

8 ways to increase employee engagement

The costs of hiring a new employee

How to hire employees: Employee referral vs. external hiring

Give a prepaid rewards card for employee recognition

How to expand your business: Does a new location make sense?

How a small business owner is making the workplace work for women

5 principles for avoiding ethics pitfalls on social media

5 tips for helping employees raise ethics concerns

The growing importance of a strong corporate culture

7 uncommon recruiting strategies that you may not have tried yet

How to build a content team

Multigenerational household financial planning strategies

How to track expenses

How to manage your finances when you're self-employed

Good debt vs. bad debt: Know the difference

Reviewing your beneficiaries: A 5-step guide

How to talk about money with your family

Financial steps to take after the death of a spouse

Retirement advice: How to retire happy

Retirement income planning: 4 steps to take

Preparing for retirement: 8 steps to take

How I did it: Joined a board of directors

5 tips for being a great board member

Working after retirement: Factors to consider

4 steps to finding a charity to support

Year end tax planning tips

Tips for navigating a medical hardship when you’re unable to work

11 essential things to do before baby comes

Checklist: 10 questions to ask your home inspector

Resources for managing financial matters after an unexpected death

What you need to know as the executor of an estate

What documents do you need after a loved one dies?

How I did it: Paid off student loans

Bank Notes: College cost comparison

Uncover the cost: Wedding

Uncover the cost: International trip

Tips to overcome three common savings hurdles

Adulting 101: How to make a budget plan

Personal loans first-timer's guide: 7 questions to ask

How can I help my student manage money?

Do you and your fiancé have compatible financial goals?

U.S. Bank asks: Transitioning out of college life? What’s next?

U.S. Bank asks: Do you know your finances?

Personal finance for teens can empower your child

How to save for a wedding

Dear Money Mentor: How do I set and track financial goals?

Lost job finance tips: What to do when you lose your job

Money Moments: 3 smart financial strategies when caring for aging parents

Money management guide to financial independence

7 financial questions to consider when changing jobs

How to stop living paycheck to paycheck post-pay increase

How grandparents can contribute to college funds instead of buying gifts

How to open and invest in a 529 plan

Using 529 plans for K-12 tuition

Parent checklist: Preparing for college

What to consider before taking out a student loan

How to use debt to build wealth

For today's homebuyers, time and money are everything

Crypto + Homebuying: Impacts on the real estate market

House Hacks: How buying an investment property worked as my first home

Managing the impacts of appraisal gaps in a hot housing market

Your guide to breaking the rental cycle

4 ways to free up your budget (and your life) with a smaller home

Money Moments: Tips for selling your home

Beyond the mortgage: Other costs for homeowners

10 questions to ask when hiring a contractor

Take the stress out of buying your teen a car

Questions to ask before buying a car

Disclosures

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, Home Equity and Credit products are offered through U.S. Bank National Association. Deposit products are offered through U.S. Bank National Association. Member FDIC.