cost of hiring an employee

To Hire or Not to Hire – the true costs of an employee

OCTOBER 3, 2019 – Your business is doing well but you’re too busy to continue wearing so many hats. You’re naturally thinking of hiring a new employee to handle the workload but do you know what the fully allocated cost of that person will be?

Employers typically think about the core costs like salary, Employment Insurance (EI) and health care that they need to pay. The true costs, however, can be 1.3 to 1.4 times their base salary depending on how you allocate some of the indirect costs.

Let’s take a look at an example for a new employee hired with a salary of $55,300 per year. Here are a few of the core costs:

So for that $55K employee, you can tack on approximately another 15-20% of the salary cost…but that’s just the beginning.

Factor all these in but then add on all the indirect costs like the following:

  • Additional incentive  compensation (bonuses, employer matched ESPP, stock options, Group RRSP, etc.)
  • Stat holidays where you are paying salary with no work actually being done ($2,203 in the example for 10 stat days in Alberta)
  • Recruiting (20-30% of salary – $13, 825 for the example role)
  • Liability insurance
  • Sick days
  • Paternity/maternity leaves
  • Vacation weeks / PTOs
  • Building costs (rent, utilities, repairs, property tax
  • Hardware costs (computer, phone, mobile phone)
  • Software licenses
  • Equipment, furniture and supplies
  • Professional association fees (often absorbed by the employer)
  • Overhead staff to support (admin, payroll, IT, etc.)
  • Meals and entertainment
  • Travel
  • Training
  • Severance
Before hiring that next employee, consider the potential cost benefits of outsourcing the work to an consultant or freelancer rather than putting another body in a chair.

With external consultants you avoid the above list of costs of an employee that don’t directly lead to ROI for your business – never pay for “non-work” vacations / PTOs, sick days or leaves of absence again! “Looks like you’ve been missing a lot of work”  ……“Well, I wouldn’t say I’ve been missing it Bob.”

Instead, with contractors you can easily control costs by setting a project’s budget, paying an hourly rate for only the actual work done or a establishing a monthly retainer or billing limit.

And don’t forget if you don’t like the results from an external vendor you can easily just move on, (depending on the contract) without that awkward “Can you step into my office for a minute?” dismissal conversation. It this factor that also motivates independent contracts and freelancers to be highly engaged. There is no guaranteed income; it’s only the quality of their work and keeping their clients happy that leads to them being able to put food on the table.

To add onto that, according to Canada HR Centre, 75% of employees are either not engaged (60%) or actively disengaged (15%). They are essentially just showing up for a paycheque. So add in the cost if this is an expression of your employee’s motivation!

1Bridge Marketing hand-selects specialized marketers, freelancers, videographers and designers from the local community that are best fitted to fulfill your marketing goals and requirements. Instead of hiring a marketing generalist and incurring all the additional costs of an employee, consider the benefits of paying an hourly rate for highly talented and focused freelancers. Let’s chat!

Comment (1)

  • Nicole October 3, 2019 at 10:05 pm Reply

    Great post! Very relevant in today’s changing market.

    As an agency recruiter myself we see this as being a huge trend. Our clients are looking to outsource many of their specialized functions. The ability to use them as needed not only saves time and money but it allows companies to get skilled talent.

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