What Is The Cost of Employees?

Tatjana Day, Director of ManageMe looks at the real cost of employing staff.

Adding a new team member is a big call but it can also be an inspired move giving you the ability to grow or gain access to skilled resources. Understanding the real cost of employing staff can help you make the right decision for your business.

How do you know if you need additional help?

Some common signs that your business may need some additional employees are –

  • Current staff can’t handle any new jobs or orders
  • Important tasks are left undone despite everyone working overtime
  • Customers start to complain about delays or a general decline in service
  • Too much time is being spent on duties that don’t actually make money
  • Revenue starts to suffer

Cost of Employing Staff

Understanding the real cost to hire is essential when evaluating whether or not your business can afford the expense of hiring, onboarding, insuring and paying additional staff.

Sitting down to figure out the real cost of employment is a surefire way to give yourself a shock. Often salary is the main consideration but there are other Direct and Indirect costs that add considerably to the total cost of any hire. The Government Business website offers a simple Employee Cost Calculator that provides an industry insight into the direct costs of employing staff.

In New Zealand you will need to add on to an employee’s salary, ACC and Kiwisaver contributions. There are also significant discretionary costs in recruiting whether there is an external agency used or adverts placed on Seek or TradeMe. Time is then invested in reviewing applicants, reference checks and interviewing. All of which is a significant HR cost. 

Once the employee is onboard they will need to be set up with a Desk, Chair, Computer and Software at a minimum. Time is then invested in training which is usually conducted by a current staff member taking them away from their own responsibilities at a cost while they bring the new employee up to speed.

All of this is done with no guarantee that the new employee will stay in the role long enough to recoup these costs. It makes sense to consider whether it’s worth the investment, or if you’re better off looking into alternatives to employing staff.

Using a Managed Service Provider

Outsourcing can offer an alternative to a traditional hire and can provide you with more flexibility. Not all tasks are suited to outsourcing but shifting some of the non-customer facing back office activity can free up your current staff to focus more on value add activity. The main advantages are the ability to scale up when required, avoid big up front costs of hiring and reduce the risk of staff retention.

Whether or not hiring a new employee is worth it for your business will come down to your individual circumstances. What’s apparent is that there is a significant cost over and above the direct cost of hiring an employee. Conservatively 40% on top of the hourly rate. This needs to be included in the equation as well as the responsibilities that come under employment law with hiring instead of contracting.

Check out our other posts looking at the differences between traditional outsourcing and managed services.

If you feel that your business is ready to hire and you are considering outsourcing as an option get in touch.