The Cost of Hiring an Employee: What Are the Alternatives?

When your business needs more people to handle the workload and maintain high-quality customer service, hiring new employees seems like a logical solution. But can your budget handle the expense of hiring, onboarding, insuring and paying an expanded staff? 

Sitting down to figure out the true cost of hiring is a surefire way to give yourself a shock. You need to decide whether it’s worth the investment, or if you’re better off looking into alternatives to taking on additional help.

How Do You Know When You Need to Hire More Employees?

The first thing to do is look for true signs that you need more employees. Most businesses consider hiring when:

  • The current staff can’t handle any new jobs or orders
  • Important tasks are left undone despite everyone working overtime
  • Customers start to complain about delays or a general decline in service
  • Too much time is being spent on duties that don’t actually make money
  •  Revenue starts to suffer

If this sounds like your business, you definitely need some extra help. Waiting to recruit more people could damage your reputation or cause you to miss out on important sales opportunities.

What’s The Cost of Hiring an Employee?

Before you start recruiting new talent, you need to weigh the cost of hiring an employee – or several – against the benefits of expanding your staff to determine if it’s a profitable decision.

Beyond the cost of wages, the hiring process alone can be a big hit in your bottom line. Take a look at some of the numbers: 

  • Recruiting through a third-party agency can cost 15% to 20% of the employee’s annual salary
  • Monthly fees for job board postings can amount to hundreds of dollars
  • Employee background checks range in cost from a few dollars to as much as $80, depending on how thorough they are

You also have to take into account the cost of advertising a position, time spent reviewing resumes and the number of productive hours lost during interviews. When you add all these expenses together, you get an average cost per hire of $4,000! And that’s just a hiring process. Once new staff members are on the job, you need to train them, pay them and cover the cost of any benefits you choose to offer. On average, employers spend $11.38 per employee per hour on benefits. Health insurance alone can cost $14,800 per employee per year. You’re also required to cover payroll taxes and workers’ compensation, disability and unemployment insurance for each employee.

All in all, the cost of paying a single employee can be between 1.25 and 1.4 times higher than their actual salary. 

What does this mean in terms of total cost? By the time you’ve gone through the hiring process and integrated new staff members into your business, you can expect to shell out 1.5 to 3 times the annual salary of each employee.

What About Onboarding and Turnover?

Onboarding, the time during which employees get used to the work environment and company culture, adds to the cost of hiring. 

The hours each manager spends onboarding an employee can represent a cost of $1,296, and the average cost for all aspects of onboarding hovers around $3,000. You’re also looking at a loss of 1.0% to 2.5% of your company’s total revenue because employees aren’t nearly as productive during onboarding as they are once they’ve settled into the groove of their jobs.

However, spending money on a good onboarding program can save you from the high cost of turnover. Onboarding can increase retention by helping employees feel more comfortable and confident, which means you don’t have to shell out as much as 213% of a staff member’s salary to replace them if they turn out not to be a good fit. 

Employees in lower-paying jobs cost less to replace, about 16% to 20% of their annual salaries, but the monetary cost is only part of the equation. Every time you have to hire someone new, it can take months for them to get up to speed and be as productive as their predecessor. This can have a negative impact on your company’s overall productivity.

Are There Alternative to Hiring New Employees?

According to the Society for Human Resource Management (SHRM), the average cost per hire, calculated by dividing the sum of your recruiting costs by the number of people you wind up taking on, was $4,129 is 2016

Include training in the equation, and the cost jumps to $7,645. For most small business owners, that’s a significant hit in the wallet. 

Fortunately, there are ways to bring these numbers down that don’t require anyone on your staff to mainline caffeine or give up sleep. Here are a few simple ideas for reducing recruitment costs: 

  • Conduct initial screening calls to cut down on time wasted with unqualified candidates
  • Introduce automation to your recruitment process and other HR tasks
  • Consider working with a staffing agency instead of handling hiring internally
  • Ask employees for referrals
  • Nurture relationships with promising candidates to build a pool of talent to fill future openings
  • Look into the possibility of hiring remote workers to reduce office costs
  • Use part-time employees to fill less-demanding positions
  • Hire seasonal or temporary employees to cover gaps
  • Offer unpaid internships to college students looking for relevant work experience

What if you can’t afford to hire at all? It may be possible to move forward with the staff you already have or get help from other sources if you:

  • Audit your business processes and adjust resource allocation to improve efficiency
  • Automate the tasks on which employees waste the most time, such as bookkeeping
  • Correct bottlenecks in workflows
  • Launch a new training program to refresh and update employees’ skills
  • Improve employee satisfaction, and therefore retention, with strategies like better communication, achievement awards and more flexibility to enhance the work/life balance
  • “Lease” employees through a staffing agency
  • Outsource small or one-time tasks to independent contractors, freelancers or agencies
  • Upgrade your equipment and technology to improve efficiency across the board
  • Move applications and workflows to the cloud so that existing employees can work from anywhere

You’ll still have to invest a bit to try these alternatives, but the total cost of streamlining what you already have should be quite a bit less than that of recruiting new hires. 

You may also discover your inability to handle the current workload is the result of inefficiencies, not being understaffed, and getting back on track simply requires adjusting your approach.

Cover the Cost of Hiring with the Right Business Loan

Whether you decide to hire more employees or explore alternatives, you need enough money in your budget to start moving forward. Business loan options like those available from National Business Capital & Services can provide fast access to the funds you need to recruit and train new employees. 

From startup loans to recruit your very first employees to lines of credit to cover routine payroll costs or hire third-party contractors, business financing gives you the freedom to choose how to source talent to support the growth and success of your company. 

National Business Capital & Services is the #1 FinTech marketplace offering small business financing and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.

Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.

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About the Author, Lauren Coppolone
Lauren Coppolone is the Marketing Coordinator at National Business Capital & Services. She enjoys keeping the marketing team organized and on track! Lauren is proud to work for a company that provides resources to small businesses to help them achieve success.