As your company grows you may be considering hiring some new employees. But, it’s important to consider the true cost of hiring a new employee, which is much more than just their base salary. First, the cost to actually find the right person should be considered. This includes advertising the position, the time to review resumes and conduct interviews, as well as background check fees and the time to process new hire paperwork.
Training costs should also be factored in. This should include the time it will take current employees to help new employees get up to speed as well as the cost of any materials or outside training that may be required.
The final costs to add are taxes, benefits and overhead. Payroll taxes will include 6.2% of salary for Social Security, 1.45% of salary for Medicare as well as federal and state unemployment tax. Workers compensation insurance should also be factored in and any employee benefits like health insurance and 401(k) match should be included as well. Adding new employees means that additional office supplies will be required, new equipment may need to be purchased, and additional office space or modifications to your current office space may be needed.
Since there are so many costs to consider, many employers use a multiple to estimate the cost of a new hire. Typically, a multiple of 1.5 to 3 times base salary will work. The multiple should be closer to 1.5 if you don’t offer benefits.