If you are considering adding or replacing an employee in your business, it is important to understand the full cost associated with this new hire. There are several aspects that most business owners do not consider while trying to come up with a valid number. Although this can become a tricky calculation, it is vital for you to understand what a new hire will cost your business so that you can be better prepared and minimize the impact. Let’s look at some of the things to think about.
We will start with the costs that most business owners consider, and you can determine easily. These are your ongoing costs of having an employee. This cost is important to understand when determining if hiring a new employee is a profitable decision for your business. If a new employee costs your business $50,000 a year and only makes your business $30,000 a year, you are losing $20,000 per year by hiring. These costs include:
- Salary / Hourly Rate
- Employer Remittances (CPP and EI)
- Vacation Pay
- Statutory Holiday Pay
- Benefits (if available)
- WCB/WSIB (if required)
Next, let’s look at some of the one-time costs involved in hiring a new employee or replacing one. You need to understand these costs to ensure that you have the funds and resources available to recruit, hire, onboard and train your new employee properly. Properly completing these activities is a vital part of ensuring that you find the right employee and that they become an effective part of your team as quickly as possible. These include:
Internal costs such as:
- A portion of Recruiter or Hiring Manager Salaries
- Employee Referral Bonuses
- Signing Bonuses or Relocation Costs
- Equipment/Software/Office Space Requirements
- Training Cost / Time (both employee and trainer, if internal)
External Costs could include
- 3rd Party Recruiter Fees
- Job Ads/Advertising
- Reference/Background Checks
- Assessments / Testing Costs
- Training Cost
Lastly, we look at the costs that very few business owners consider and are the hardest to quantify. Unfortunately, these can be some of the biggest costs. These include:
- Your time and that of your team members who are involved in the hiring process activities such as reviewing resumes or participating in interviews. These individuals have various responsibilities that need to be completed each day including management of the team, sales, customer service, and much more. What is the cost when these activities do not get done or done properly?
- Lost revenue while the new employee gets up to speed. It is unlikely that your new employee is going to be working at full potential for the first few months, and depending on the type of job, it may take even longer. Remember back to our discussion on your on-going costs of having an employee. What if the new sales employee does make any sales in the first three months while they are learning and developing their new market? All of their salary becomes a cost.
- Hiring someone who turns out not to be the right fit can cost the business clients, business reputation, and employee morale & engagement. This can be by far the biggest cost of a new hire if it is not done right. This is why taking the time to hire the right person the first time is so important.
There are lots of one-time and on-going costs to consider when adding or replacing a new employee. Make sure that you take the time to understand these costs before moving forward so that you can ensure that your business is ready to deal with them as they arise.
What do you think is the biggest cost of hiring that most business owners don’t consider before hiring?
Leave a Reply