Calculating the True Cost to Hire Employees

The real cost of hiring employees

Assessing the real cost to hire employees involves factoring in benefits, marketing and training expenses which can significantly add to total employer costs.

Calculating the true cost to hire employees involves factoring in many components beyond tangible wages and salaries. There are many direct and indirect costs that should be included in this calculation including benefits, hiring and training. Just like constructing a solid long-term investment portfolio, hiring employees requires the same preparation and planning.

Costs of Benefits

Salaries and wages account for 70.1 percent of total employee compensation according to the Bureau of Labor Statistics (BLS). The March 2019 Employer Costs for Employee Compensation report indicates that benefits accounted for an average of 29.9 percent of total employer costs for an employee's compensation. These benefits include paid leave, supplemental pay, insurance, retirement and savings plans and legally required payments like FICA. This means that an employee earning an annual salary of $50,000 would include an average of $14,950 in benefits costs for a total annual wages and benefits expense of $64,950 for the employer.

Costs to Hire and Train

It costs employers an average of $4,129 and takes an average of 42 days to fill an open position according to a report by the Society for Human Resource Management (SHRM). The cost to hire employees increases proportionately based on the duration of the search, job role and salary range.

As noted by the 2018 Training Industry Report, employee training costs decreased to an average of $986 per learner, down from $1,075 in 2017. This is relative to the type of role and the necessary skill sets. Larger organizations spent $1,046 per employee, compared to midsized companies at $868 and small companies at $1,096.

Human Capital Investment Management

Hiring a workforce is akin to building a stable investment portfolio, but with human capital. The goal of investing in human capital is to maximize return on investment (ROI) in the most efficient manner and shortest period of time. Talent that can generate greater and quicker ROI naturally commands a higher premium in the jobs marketplace. Therefore, it's prudent to plan ahead and be prepared with a mid to high-range number for each open position based on the real cost of hiring employees to alleviate sticker shock and loss of talent to competitors.

Go Deeper

In today's competitive job market, attracting and retaining top talent is crutial for your organization's success. Visit the talent management resource page for the latest actionable insights from the ADP Research Institute® (ADPRI).

The ADPRI 2019 State of the Workforce Report provides decision makers with organizational benchmarks to compare against their own internal HR statistics.