The Costs of Hiring a New Employee

When companies hire a new employee, they often focus on just the salary they will pay that worker when they're considering costs. But there are so many more costs that go into hiring and onboarding new employees that companies need to be aware of. Here is a comprehensive guide on the costs of hiring a new employee as well as some ways you could reduce those costs. 

SERVIAP can help with your global expansion needs. Contact us today to learn how you can expand your business with PEO in South America and Latin America. 

Recruiting 

Before you can hire a new employee, you have to find candidates. In today’s competitive marketplace, this is easier said than done. You have to write a solid job description and actually sell employees on why they should want to work for your company. You also need to find the right online sites to list your job, based on your location, the type of work you do, and the type of person you want to attract. Then, you need to find a way to market your job posting so that qualified candidates actually see it. 

All of this costs money. In fact, the Society of Human Resource Management suggests that it costs an average of $4,425 to recruit just one new employee. 

Screening 

Once you've recruited candidates, you have to wade through all the applicants to find the best fit for your organization. This will take time, effort, and more money. 

In the screening process, you may need to pay for services such as employment verification, a criminal background check, or a professional license check. All of these were included in the SHRM's $4,425 average noted above. 

But there are hidden costs to screening potential employees, too. Whatever time your HR employees and managers spend on this screening is a cost you will assume. That's because when they're doing these tasks, they won't be doing their other work. So, every time someone reviews a resume, schedules meetings, or conducts interviews, they aren't doing something else that could be generating your company money—thus adding to the cost of hiring a new employee. 

Onboarding 

Once you've made the hire, you'll need to onboard and train your employees. They won't be at peak production day one, no matter how experienced they are. You'll need to train and onboard all of your new employees. This includes bringing them up to speed on company policies and procedures as well as training them on their specific job and duties. 

This process takes a lot of hand-holding. Those who will be doing the training and onboarding will have to take time away from their typical jobs to do this work, as well. That could mean they fall behind on their core duties in the process, which is another cost to consider. 

It may take as many as 20 weeks for some employees to reach their full level of productivity. A Training Magazine study in 2017 found that the average company spends roughly 47.6 hours training and onboarding a new employee—at an average cost of $1,075. 

Taxes & Benefits 

An employee doesn't just cost the company the salary they pay. Businesses also have to fork over payroll taxes and benefits. U.S. companies have to pay FICA taxes equal to 6.2% of their employees' wages (which covers Social Security) as well as an additional 1.45% that goes toward Medicare. 

Employers must also pay state and federal unemployment taxes. The federal rate is currently 6% of an employee's first $7,000 they earn, while state unemployment taxes vary for each state. Companies can receive a tax credit, pushing this tax liability down substantially, but it's still a cost that should be factored in for every new hire.  

Finally, companies often pay at least a portion of their employees' benefits package. This could include health benefits, workers' compensation, retirement savings plans, and more. All of these things are very attractive to employees nowadays, so it's important for companies to provide them. Still, providing benefits is expensive. In fact, benefits could account for as much as 30% of a company's total labor costs. 

An Alternative: Work with a PEO 

One alternative to recruiting, hiring, onboarding, and training new employees is to work with a Professional Employer Organization (PEO) located in South America. This is a great way to gain economies of scale while outsourcing part of your business to a reputable company. 

PEOs like SERVIAP are a great way to rid yourself of all the HR administrative tasks associated with managing employees. The PEO will handle all aspects of that for you, while providing you with enormous cost-savings on things such as employee benefits, employee salaries, and taxes. 

For example, a junior developer in the United States could make up to $101 per hour, compared to only $35 per hour in South America. Senior developers could earn up to $148 per hour in the U.S. compared to only $50 per hour in South America. 

You won't lose control of your employees either, as the co-employment arrangement will still see you manage the day-to-day operations of all your employees.  

Expand Your Business with SERVIAP 

SERVIAP is a leading Professional Employer Organization (PEO) ready to help your business expand operations throughout the Western Hemisphere. PEO is a model of co-employment, where we assume total responsibility for your talent, allowing you to focus on the strategic activities of your organization. Contact us today to learn more about how you can expand your business in South America and Latin America.