It is always important to understand the total cost of hiring a new employee. Obviously, wages are a significant cost over the long-term, but you must also recognise that there are various other expenses involved that must be factored into your budget. This post will break down the different factors that contribute to total employee costs and offer tips for managing these costs.

Salary Vs. Total Compensation

First, you should understand the difference between salary and total compensation. Base salaries are the amount that you pay to your staff annually, while total compensation includes base salaries and other expenses, such as bonuses, performance incentives, and non-monetary benefits (perks, paid leave, etc.). It is vital that you consider the total compensation when hiring a new employee while ensuring that you are offering an attraction compensation package to attract talent to your organisation.

Employer Contributions to Taxes & Benefits

There are also required employer contributions to taxes and benefits that must be considered. Employers are obligated to make National Insurance contributions that support healthcare and state pensions in the UK. Pension contributions under the Auto Enrolment scheme are also required where employers must pay at least 3% of an employee’s earnings into a pension. An employment cost calculator can be used to give you an idea of the total costs involved in a new hire.

Hidden Costs of Onboarding & Training

There are also often-overlooked costs when it comes to hiring, onboarding, and training new employees. Productivity can temporarily fall during training periods while the new team member catches up to speed and is supported by other team members. Although temporary, this dip in productivity can last for weeks or even months, which can cost the business money and need to be factored in when hiring new staff.

Workplace Costs & Operational Expenses

There are then various workplace and operational costs involved in employing staff. These include office space, furniture, computers, and other tech, and any other resources that you will need to provide them with in order for them to do their job. Keep in mind that these workplace costs can quickly add up as your business starts to grow. Remote/hybrid work can lower some of these operational costs, but there will still be many that need to be factored into your budget.

As you can see, there is a lot beyond basic salaries that need to be considered when hiring new employees. It is important to understand the total cost of hiring employees so that you can manage these expenses in a way that supports business goals and staff needs.