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The Actual Cost of Hiring Employees: 4 Hidden Areas to Consider

According to Payscale, the average base salary for a startup employee is $106,000 per year plus a $9,000 bonus. But hiring an employee will cost you a lot more than their salary. Some costs are “hidden,” even though they’re right there in plain sight. If you don’t think about these expenditures upfront, and you don’t fully factor them in, they’ll be a very unpleasant surprise to your bottom line later. And if you’re hiring multiple employees, those unexpected costs could amplify. When creating a hiring plan, make sure you’ve budgeted an all-in cost per employee.

I’ve broken these hiring costs into four areas you may not have fully considered. The actual dollar value will vary according to the size of your business, location and role you’re hiring for in the industry. But all hires will typically include all these types of costs.

  1. Hiring team, job posting & screening

You’ll want someone in-house to manage the entire hiring process, whether it’s one person or a team. You’ll also need to pay for posting the job, and that cost depends on where you’re going to post and which sort of website you’re using; you might have to pay a subscription and/or a payment per posting. Look to your HR hiring team for expertise on this.

Consider the amount of time other team members will be spending on hiring. You’ll often have the CEO or other team members involved in interviewing for multiple stages, and you’ll need them to give feedback. Organizationally, hiring takes a good amount of time away from business for the rest of your team. You should factor in the cost of that time.

Don’t skimp on screening and background checks. There are third parties you can hire to do this. It’s definitely not something you want to avoid — even if you know the person or they’re in your network in some way. You’ll need to confirm their qualifications, experience, previous employers and general background.

2. External hiring agency

Your external hiring agency should be with you from the beginning of your search. It’s important to find the one that fits with your industry and the role, because these firms tend to be very niche. For example, if you’re hiring for a CTO, there might be specialist agencies that focus on technology personnel and heads of technology, or pick an agencies that does well at finding leadership-level people across various functions. Choosing the right hiring agency makes a big difference, because that’s the top of your funnel. It’s probably the most access to the overall talent pool you’ll have, and they’ll be the people bringing candidates to you. You’ll want it to be targeted to what you’re looking for.

Keep in mind: If you actually give an offer, external recruiting fees can be 10% to 25% of the first-year salary, and it’s usually payable, at least in part, before the employee starts adding value to your company.

3. Equipment & training

Once you’ve got an employee on board, part of the cost of hiring will be whatever equipment you’re providing in line with their role and the policies of your company. It can vary, but it might be a certain dollar amount for a home office, or a laptop and monitors, and so on. Every time you hire someone, that’s a cost you’ll incur.

And just as in the interviewing phase, members of your overall team will be involved in your training processes, which is an implicit cost to your organization. It could mean, for example, other projects you have going on just take a bit longer than they would have otherwise, because there’s only so much the rest of the team can do.

If you have an established onboarding process through your HR function, things will flow much more smoothly, and team time can be minimized.

4. Salary, benefits & bonus

While compensation items are the most obvious hiring costs, they are quite variable in what market salary is in a given region at any given time. Inflation may pay a part, or recent staff cuts in other businesses could drive down the general salary range for a role. You need to be up to date around what the right amount is to give the person you want to hire at the point you’re hiring.

If you’re providing equity or stock options, you also need to factor in the cost of that and consider the impact on your cap table. For example, have a look at how much stock you have left before you give away options, especially if you’re hiring a few people. Track what dilution impact that’s going to have for existing investors.

At the point of hiring, you may need to factor in what a person might have gotten as a bonus in their previous role. Sometimes you’ll need to make them whole or at least have something comparable. Think about your general bonus policy. Typically, you’ll have a total bonus pool for a specific year depending on your whole company’s performance, then you’ll allocate that bonus to departments and individual contributors. That kind of top-down approach will affect how much you pay in bonuses to new staff members.

Every one of these costs will have an impact on your budget and your business plan. Please reach out to me before you start a hiring process. I can help you figure it all out.