February 18th, 2015 / Insight posted in

The Hidden Cost of Hiring Employees

by Richard Cummings Hiring employees is a positive and exciting turning-point in your business as it means that this is a direct reflection on the growth of your company. However, it also brings with it new stresses and many hidden costs that you may not have considered previously. This article will consider some of the hidden costs that you will encounter if you decide to expand your company and grow your business. Firstly, the cost of advertising the job opening can be high, especially if you use an agency: agencies can charge up to 20% of your employee’s first year’s salary. You may be able to make use of cheaper alternatives such as social media, local newspapers and job sites, as these tend to be relatively inexpensive compared to using professional services and can still yield some fantastic finds. Once the obvious costs are out of the way, for example, the employees gross salary which is stated as an expense through payroll, you also have the extras that come from a person’s wage. Also to be considered is the tax and National Insurance to be given to HM Revenue and Customs each month; it is the employer’s responsibility to deduct the correct amount and ensure HMRC receives it. You must also consider Employer’s National Insurance: this is your contribution on behalf of the employee and is charged at a rate of 13.8% of the gross salary (the first £2000, however, is waived). You also have to think about the pension, which is a minimum of 3% and will become compulsory from August 2017 (yet can be started earlier). Along with these expenditures you also should consider employer’s liability insurance to protect the company, as without it you may get caught out with some hefty charges. You should also be aware of the costs of sickness and maternity/paternity pay, as these are things that one may not think about initially. It isn’t just about the cost associated with HMRC, but also the day to day costs that accrue. You have the general and administrative overheads as well as the consumables. The cost of the admin for a new member of staff can often be forgotten and this can come in the guise of printing of payslips, creating another employee on payroll and more. The cost of furniture, a computer, stationery, premises and, even, electricity for the extra member of staff are also included in those often forgotten costs of new staff. Then there is the cost to the company and the productivity levels of a new employee, especially if the new member of staff is replacing someone. It can take someone 1-2 years to reach the productivity of an existing person, while the cost of training and managing the new employee is also considerable. If an employee leaves and someone else is brought on board this can reduce the engagement levels within your existing staff, creating a loss in productivity according to Josh Bersin of Bersin by Deloitte. He also states that new employees are often less adept at solving problems and so training costs can add up; for example, over 2-3 years, a business is likely to invest between 10-20% of an employee’s salary into their training.