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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.
The first thing to do is look for true signs that you need more employees. Most businesses consider hiring when:
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.
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:
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.
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 employee 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.
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:
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:
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.
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 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 is the #1 FinTech marketplace offering small business loans 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.
We strengthen local communities one small business loan at a time. For every deal we fund, we donate 10 meals to Feeding America!
Lauren is the Marketing Manager at Nationalbusinesscapital.com. She has 7 years of professional experience with a focus on small business marketing and finance. She previously worked as a senior business analyst for B2B SaaS, Sky IT Group. She has covered topics including, business financing, startups, retail, taxes & regulations, etc. Her work has been featured by USA Today, Google & Yahoo News. Lauren holds a B.A. from the Fashion Institute of Technology’s (FIT) School of Business.