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Hiring is one of the most important investments a business can make—and also one of the most expensive.
According to the Society for Human Resource Management (SHRM), the average cost of hiring a new employee is around $4,700. But that number can be misleading. When you factor in soft costs like training, lost productivity, and manager time, the real expense can easily balloon to 1.25x to 4x an employee’s salary, depending on the role and location.
So how much does it really cost to bring someone new onto your team? And what hidden costs are most businesses missing?
This blog post breaks it all down—so you can budget smarter, hire better, and avoid expensive surprises.
1. The Average Cost Per Hire: A Benchmark That Only Tells Half the Story
Let’s start with the baseline. SHRM reports that the average cost per hire in the U.S. is $4,683. That includes common recruitment expenses like job ads, recruiter fees, and onboarding materials. But for many employers, that’s just the starting point.
Costs can vary dramatically:
- Entry-level hires typically cost about 20% of their salary
- Mid-level roles can cost 100% to 150% of the annual salary
- Executive positions may cost 200% to 300%, especially when using external recruiters
In the UK, employers often use a 1:3 rule of thumb: one-third of an employee’s output goes to wages, another third to overhead and costs, and the final third to profit.
If you’re hiring for a $60,000 position, that hire could realistically cost $15,000 to $20,000 or more—not including their salary.
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2. Hidden Hiring Costs Most Employers Underestimate
Beyond base compensation, a wide range of indirect and recurring costs come into play:
📋 Recruitment & Admin
- Job Boards: Posting to LinkedIn, Indeed, or ZipRecruiter can cost between $99–$500/month
- Recruiter Fees: External recruiters often charge 15–30% of a candidate’s first-year salary
- Background Checks: Can range from $10 to $100+ depending on depth
- HR Costs: Internal HR teams, onboarding software, and applicant tracking systems all add overhead
🖥️ Equipment & Setup
- New hires need tools to work: laptops, monitors, phones, software licenses
- IT teams also spend time setting up accounts, permissions, and security access
🧠 Training & Lost Productivity
- Training a new employee costs $954 to $1,252 on average
- Expect 30+ hours of training time, which affects the productivity of both the trainee and trainer
- Most employees take up to 12 months to reach full productivity
💸 Payroll Taxes & Legal Requirements
In the U.S.:
- FICA (Medicare + Social Security): 7.65%
- FUTA (Federal Unemployment): 0.6–6%, depending on credits
- SUTA (State Unemployment): Varies by state
In the UK:
- Employer NIC (National Insurance): 13.8%
- Pension Auto-Enrolment: Minimum 3% contribution
- Holiday Pay: Employers must account for 12.07% of wages to cover statutory leave
💼 Benefits & Compliance
- Benefits average 31% of total compensation, according to the U.S. Bureau of Labor Statistics
- This includes health insurance, 401(k) matching, PTO, wellness programs, and more
Employers must also budget for payroll processing, HR compliance, and potential legal costs
3. Employees vs. Contractors: Why Misclassification Can Cost You
Many small business owners wonder if it’s cheaper to hire contractors instead of full-time staff. It can be—but only when done legally and correctly.
The IRS and most governments use 3 main criteria:
- Behavioral: Who controls how the work is done?
- Financial: Who supplies tools and bears profit/loss?
- Relationship: Is there a contract? Are benefits offered? Is the work ongoing?
Misclassifying a full-time worker as a contractor to avoid taxes and benefits can trigger hefty IRS penalties, audits, and back payments.
As one accountant on Reddit warned, “Just because others are doing it doesn’t mean it’s legal—and saying ‘everyone does it’ won’t help when the IRS knocks on your door.”
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4. How to Calculate Your True Cost Per Hire
Here’s a simplified formula to estimate your real hiring costs:
Cost Per Hire = (External Costs + Internal Costs) ÷ Number of Hires
Where:
- External Costs = Job board spend, recruiter fees, background checks
- Internal Costs = HR salaries, hiring manager time, training, onboarding, software, and equipment
If your company hired five employees this year and spent $50,000 total on recruitment-related activities, your cost per hire is $10,000.
Don’t forget to factor in:
- Cost of turnover if the hire fails
- Productivity delays
Long-term benefits impact.
5. How to Reduce Hiring Costs Without Cutting Corners
There are smart ways to lower your cost-per-hire—without sacrificing candidate quality.
Build a Strong Referral Program
- Referred employees are 4x more likely to be hired and tend to stay longer
- Incentive costs ($50–$5,000) are often cheaper than recruiter fees
Reuse Qualified Candidates
- Keep a “silver medalist” talent pool for future openings
- Cuts down on sourcing time
Streamline Interviews
- Use structured, virtual interviews to save travel time and reduce bias
- Cut unnecessary interview rounds that slow your process
Invest in Retention
- The best way to lower hiring costs? Hire less often.
High turnover = lost institutional knowledge + repeat spending
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Final Thought: Hiring Is an Investment—Not Just a Transaction
Hiring isn’t just about filling an empty seat. It’s about investing in someone who can contribute, grow, and help your business thrive.
Skipping background checks, underestimating training costs, or misclassifying workers might save a few dollars up front—but it can cost you far more in the long run.
Budget smart. Plan ahead. And remember: the real cost of hiring isn’t just financial—it’s strategic.
FAQ
The average cost per hire is estimated to be around $4,700, according to SHRM. However, this figure can climb to $10,000 or more once you factor in indirect costs like lost productivity, manager time, and onboarding.
Yes. Hiring a senior software engineer will generally cost more than hiring a junior administrative assistant. Executive and technical roles often require more sourcing time, specialized recruiters, and higher onboarding investment.
On average, it takes 36 to 42 days to fill a role. The time-to-hire directly impacts cost due to lost productivity and extended workloads for other team members.
Yes. Internal hires typically cost less because they don’t require external advertising or sourcing fees, and they often onboard faster due to familiarity with the company culture and systems.
Training and onboarding can add $1,000 to $2,000+ per employee, depending on the role. Poor onboarding can lead to early turnover, which further increases overall costs.
Cost calculators from platforms like SHRM, Gusto, and B2B Reviews can help estimate real hiring costs based on variables like role type, company size, and location.
