Calculating the cost of employing an employee

Calculating the cost of employing an employee


Understanding the True Cost of Employing an Employee or hiring one in SMEs: A Comprehensive Short Guide

In the competitive landscape of Small and Medium-sized Enterprises (SMEs) in the UK, every decision counts, especially when it comes to staffing. As a staff leader or human resource professional, it’s crucial to comprehend the full scope of expenses and costs involved in hiring or employing an employee, whatever that individual is being hired to do. From recruitment, onboarding and training, to benefits and overheads, the cost of bringing on a new team member extends beyond just their salary. This mini short guide aims to delve into the intricacies of calculating and managing these expenses, while also exploring how remote global working can offer cost-effective alternative solutions for SMEs starting out or planning to grow their workforce.

Calculating the Cost:

  1. Salary and Benefits:
    • Start with the base salary for the position.
    • Add benefits such as healthcare, pension contributions, bonuses, and perks like gym memberships or travel allowances.
    • Example: Base salary of £30,000 + £5,000 in benefits = Total annual cost of £35,000.
  2. Recruitment Expenses:
    • Include costs for job postings, background checks, and hiring platforms.
    • Factor in recruitment agency fees if applicable.
    • Example: £500 for job postings + £1,000 for agency fees = Total recruitment expenses of £1,500.
  3. Training and Onboarding:
    • Estimate costs for training materials, software licenses, and employee onboarding programs.
    • Consider the time spent by existing staff on training new hires.
    • Example: £1,200 for training materials + £800 for software licenses = Total training expenses of £2,000.
  4. Overheads:
    • Account for office space, utilities, equipment, and other overhead costs per employee.
    • Example: £300 per month for office space/utilities = £3,600 annually per employee.

The world is shrinking, mobility of talented individuals and their locations mean people can work for you from anywhere in the world with a good internet connection and some decent IT hardware. If you think you can’t afford to hire an employee, perhaps you need to think more creatively and think where in the world you can access talented staff but for less than it would cost than hiring in your own country.

Remote Global Working: Cost-Effective Solutions

  1. Outsourcing and Freelancing:
    • Explore outsourcing tasks to remote freelancers or agencies.
    • Benefit from cost savings on salaries, benefits, and overheads.
    • Example: Hiring a freelance graphic designer for specific projects rather than a full-time in-house designer.
  2. Remote Teams:
    • Embrace remote work to access a global talent pool.
    • Save on office space and related expenses.
    • Example: Building a remote customer support team with representatives across different time zones.
  3. Technology Investments:
    • Invest in collaboration tools and software to facilitate remote work.
    • Consider platforms for virtual meetings, project management, and communication.
    • Example: Subscribing to a remote work platform like Slack or Zoom.

In conclusion:

Understanding the true cost of hiring an employee goes beyond just their salary. By considering recruitment expenses, training costs, and overheads, SMEs can make informed decisions about their staffing needs. Embracing remote global working offers practical solutions for reducing expenses while accessing a diverse talent pool. By leveraging outsourcing, remote teams, and technology investments, SMEs in the UK can optimise their workforce management strategies for sustainable growth in today’s competitive landscape.

Remember, every pound saved in staffing expenses contributes to the bottom line and long-term success of your SME. It’s why retention is so important, which is why your company culture and employee offering needs to be attractive, enjoyable and rewarding for staff, particularly those you want to keep, as it save so much more money in teh long run. Proactive not reactive is always less money.

You may find our other calculators useful in calculating the cost of absence and calculating the cost of attrition, which is staff turnover, how many people leave your business in a year and what the cost impact of that is, quite eye watering.

Stay informed, stay strategic, and thrive in the world of SMEs! Let us help you survive and thrive.

Note: The examples provided are for illustrative purposes and may vary based on specific circumstances and industry standards.