When the workload increases and it’s time to hire more staff, business owners don’t often consider all of the cost of an employee. It’s easy to add up the base salary, small bonuses, and commission, but there are many other real costs involved.

A new employee’s actual cost can range from 20 – 40% more than their base salary.

Below we have the most significant hiring costs to keep in mind before you bring on a new team member. Keep these in mind when you’re considering hiring people, and consider outsourcing instead.

• 1) Base Salary + Bonus/Commissions
• 2) Recruiting and Hiring Costs
• 3) Taxes
• 4) Computer & Basic License
• 5) Rent
• 6) Workers Comp
• 7) Health/Dental/Vision Insurance
• 8) 401(k) Match

1. Base Salary + Bonus/Commissions

The most obvious expense that comes with a new employee is their base salary. This amount may fall within a manageable range for the first few years, but long-time team members expect periodic raises for meeting work req

On top of the base salary, you may need to factor in an annual bonus. If the position includes a commission rate, you’ll be paying even more as the employee brings in revenue.

2.Recruiting and Hiring Costs

Finding excellent new employees isn’t cheap. Whether you’re paying team members to take care of recruiting or turning to online platforms for your next new hire, the price of seeking new employees can add up quickly on its own. Consider how much you’ll need to budget for the time it takes to fill each open position at your company.

3. Payroll Taxes

As the size of your business increases, so does your tax bill. Adding another worker to your payroll means you’ll be responsible for social security and medicare taxes. You’ll also report wages, tips, and all other forms of compensation for the new employee.

4. Computer & Basic License

Business owners cover all the equipment and materials employees need to fulfill their job responsibilities. That means buying the computer, desk, and software required for each task. Small costs for even the most standard licenses add up over time as you expand your subscription plan for each new employee.

5. Rent

Hiring employees means giving them space to work. The rates on rented office space vary greatly depending on your location. If you work in a metropolitan area, you could be looking at monthly rent expenses that take an unfortunately large cut of your overall revenue.

6. Workers Comp

No business owner wants to imagine a situation where an employee needs worker’s compensation, but it’s critical to prepare for the worst. You’ll need to invest in excellent insurance to make sure you can handle expensive claims without breaking the bank

7. Health/Dental/Vision Insurance

Once you have enough full-time employees on your payroll, you’ll need to consider the cost of providing health insurance benefits to your team. Even the most stripped-down coverage plan could run you several thousand dollars per month. Once you add dental and vision care to the list, you could be looking at a significant expense that only goes higher as your business grows.

8. 401(k) Match

Many employers offer 401(k) matching to their workers. While it’s great to invest in the future of your dedicated team members, you’ll need to account for how much your employees will put away over the years they spend at your company.

Need a more cost effective way to get tasks done? Want to know if you can outsource these tasks?

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Final Thoughts

With all these expenses to factor in, it’s no surprise that a new employee’s actual cost can range from 20 – 40% more than their base salary. Consider offshoring as an alternative when you have to add your next employee. Outsourcing can drastically reduce the cost of an employee.