The decisions that you make as a small business owner play a big role in your company’s growth. One of the most important decisions is who to hire to help you carry out your goals for your business.

Having the highest caliber of people working for you is crucial and can help propel your business to great success. Therefore, you want to make the most informed decision on who to hire.

While the hiring process may seem daunting, learning what to expect beforehand in terms of costs can alleviate a lot of stress when making the important decision on who to bring on to your team.

Costs of Hiring an Employee

Here are some of the most significant costs associated with hiring to consider:


The recruitment of employees is the first cost to consider when looking for a new employee. Recruiters save employers a lot of time and effort by advertising the job in the right places, looking over potential employee resumes, pre-screening candidates, and contacting candidate references. This, however, doesn’t come cheap.

Employers can expect to pay recruiting services between 15-25% of the candidate’s first year pay. You can cut down on this cost by taking on the recruiting yourself. While this can be more time consuming, there are several free sites where you can advertise your job, and some even allow you to add pre-screening questions. A few places you can post your job listing for free include well-known websites such as LinkedIn, Indeed, and AngelList. If you wish to recruit from a more local group of candidates, you can also post the job listing on your company Facebook or Twitter page.

Pre-Employment Checks

Another recruitment cost associated with hiring is pre-employment checks. There are several different kinds of checks you can run on your potential employee, including identity verification, credit history, motor vehicle record, criminal background checks, drug tests, and education verification.

While running all these checks could potentially cost you hundreds of dollars, the most common pre-employment checks that should be important to any employer include criminal background checks and motor vehicle records. A Statewide Criminal Repository Access check can cost between $3 and $65 while a Department of Motor Vehicle check costs between $2 and $25.

Payroll Costs

When hiring new employees, you must legally document this to the State and Federal Government. In doing so, you must pay several taxes and fees for your new employee. You must contribute to Social Security and Medicare and pay state and federal unemployment taxes, as well as unemployment insurance, depending on the state. These fees vary from state to state so it’s best to check with your local government to know what you can expect to contribute.

Employee Salary and Benefits

An obvious cost when hiring will be the salary of your new candidate. However, you should expect to offer more than just an hourly or yearly wage to your employees. In order to be a competitive place to work, you will need to offer incentives in the form of benefits to entice employees to want to work with you. You can offer a standard benefits package or tailored benefits to the specific position or candidate you’re looking to hire. You should keep employee benefits useful and unique in order to attract top talent.

Costs of Onboarding New Employees

Now that you’ve recruited a new employee, investigated his or her background, and offered a nice salary and benefits package, you must train your new employee to be able to perform the job requirements effectively.

It can take between eight and 26 weeks to properly onboard new hires, during which time they will be costing you and your team time and money and not yet giving you your ROI. However, if you have picked a good candidate in the recruitment stage of hiring, you can take comfort in the fact that he or she will eventually provide that ROI you are looking for. In the meantime, a lot of support and guidance from you and your team can greatly speed up the learning phase.

Boost Employee Retention to Reduce Average Cost-Per-Hire

An important idea to consider when hiring is how long you will be able to retain your new employee. Although it’s hard to definitively know for sure, you can look at previous data to figure your employee retention rate.

A good way to gain insight on why employees leave is to implement an exit survey to employees leaving your business to better understand why they’re leaving. You can also research information about employee retention.

In general, 80% of employee turnover is the result of bad hiring decisions. Knowing this cost of employee turnover can help you to place importance on the hiring process from beginning to end, making sure you hire the absolute best candidates possible.

Key Takeaways on Hiring an Employee

Overall, it’s difficult to say what the true cost per hire is. There is a wide variety of factors to consider when looking to bring on a new employee. It should be stressed that from the beginning, each decision you make in the hiring process can boost or diminish the return on investment of your new employee.

Whether you choose to pay for nearly none, some, or all the associated costs that come along with hiring, knowing all your options and how these costs can impact the outcome can greatly help you in your small business hiring process.

Samantha-Rupp-200Samantha Rupp holds a Bachelor of Science in Business Administration and is a contributing editor for She lives in San Diego, California and enjoys spending time on the beach, reading up on business industry trends, and traveling.

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