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What Does It Cost To Hire an Employee?

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What Does It Cost To Hire an Employee?

What Does It Cost To Hire an Employee?

It’s common knowledge that recruiting is expensive, especially when it is overly slow or results in a bad hire. But where exactly do all these costs come from, and is it possible to grow your team without breaking the bank? 

There are many aspects to recruiting, hiring, and onboarding, which can sometimes make it hard to determine exactly what your organization spends on filling a new role and how these costs might be reduced. 

Good hiring is critical to running a successful business, but it helps to know where to invest your time and money to improve your process. Luckily, this article breaks down the costs associated with hiring — and even offers a few tips for reducing them. 

Why Is It Important to Invest in Hiring?

Hiring impacts every other aspect of your business, so it makes sense to make it as efficient and effective as possible. Sure, reducing your hiring spending sounds appealing, but you’ll want to proceed carefully.

Cutting corners on hiring can have negative consequences that ripple out to the rest of your organization. A successful business depends on its staff, so recruiting high-quality employees who share in your organization’s vision is worth the investment. 

In brief, the people you recruit become the people you hire, who can often dictate the direction, culture, and productivity of your business. Therefore, an investment in your hiring process is an investment in the overall success of your organization.

What Costs Are Associated with Hiring?

Despite the importance of effective hiring, it’s still advisable to make sure your hiring budget is being put to good use. The cost of hiring an employee can range from a few thousand dollars for entry-level positions to tens of thousands or more for executive-level jobs. 

It’s essential for businesses to consider these costs when developing a hiring strategy and to allocate resources effectively to ensure that the hiring process is efficient and cost-effective. 

Spending thousands of dollars on filling a role may be necessary in some cases, but it becomes money wasted if the new hire doesn’t pull their weight. So what is the average cost of making a new hire? 

1. Advertising and Recruitment Costs

Advertising a new position is the first step of hiring —  and the first place you’ll be required to open your wallet. Social recruiting, or using social media to find new employees, is essential to modern recruiting strategies, but admission isn’t free. 

Most employers pay for LinkedIn accounts, access to job boards such as Indeed, and advertising capabilities on platforms like Facebook or Instagram.

Of course, it also costs money to pay internal recruiters or recruiting agencies to create posts, monitor accounts, and review candidates’ applications. Paying external recruiters can be more expensive than hiring a full-time recruiter, but it still may be a good choice if you don’t have ongoing hiring needs. 

Especially if you use a combination of social media platforms, keeping track of posting schedules and logistics can be complicated. 

Recruiting software can improve your hiring process by making it easy to optimize your content.

For example, because different platforms have different requirements for posting, a job ad designed for Instagram may look clunky on LinkedIn. This could make you look unprofessional or out of touch and will likely tarnish your employer brand. 

To streamline this process, social recruiting software allows you to easily keep track of posting, engagement, and conversion on numerous platforms, ensuring your social recruiting practices yield the best possible results. 

However, subscriptions to these platforms can cost anywhere from $50 to $100,000 per year, so it’s important to consider these costs as an aspect of your total hiring budget. 

2. Screening Costs

Screening costs typically include the time and resources it takes your HR department to review resumes, conduct interviews, and assess candidates’ qualifications and fit. You may want to invest in an ATS to speed up the process. 

Applicant tracking systems, also known as ATS, can make every aspect of recruiting easier for your HR department, from sourcing applications to keeping track of their progress throughout the recruitment process. 

Automating some stages of the screening process will save your reps time and energy and allow them to focus on thoroughly vetting new candidates. In addition, ATS software can help ensure legal compliance throughout the hiring process, which will likely prevent legal expenses down the line. 

Depending on your business’s needs, you can expect to spend up to $100,000 on an ATS. Competing platforms offer different pricing models, so you can choose between paying a flat rate or paying per job vacancy, recruiter access, or the overall size of your organization. 

Though using an ATS can be expensive, the variety of pricing options makes it easy to find a system that works best for your team. 

3. Hiring Costs

Once you’ve found a high-quality candidate, it’s time to make a job offer, negotiate salary and benefits, and complete necessary paperwork and background checks. All of these steps take time and will accrue costs as you pay recruiters and other HR employees. 

4. Onboarding Costs

Onboarding costs can include the time and resources required to train new hires, provide necessary equipment or resources, and integrate them into the company culture

To reduce spending on labor, use onboarding software. Onboarding software often features onboarding and offboarding checklists, document storage, and a self-service application that allows employees to access their information at any time. 

More advanced software sometimes offers specific training content for different roles, so you can tailor your new hire’s experience to provide exactly what they need to get started in their position. 

Automating the onboarding process helps create the same experience for all new hires and reduces the workload of your HR department. But, again, though you’ll save money on labor, onboarding software can be costly based on the size and needs of your business. 

Another aspect of hiring costs is the lack of immediate productivity. Even though new employees are there to fill a vacancy, they won’t be fully productive on their first day. 

In fact, it can take three to eight months for new employees to hit their full productive potential, and the time spent getting them there can also cost your organization money and efficiency.

There’s not much to be done about this, but investing in a high-quality training program will help fast-track new hires to reach their full potential.

So What Does It Cost to Hire a New Employee?

In brief, there is no simple answer. Costs associated with hiring will vary widely depending on the type of business you run, what position you are hiring for, how difficult recruiting is at the moment, offered salary, and whether or not you provide employee benefits. 

These costs are also interrelated. For example, if you have difficulty finding candidates, consider raising the position’s salary or offering more benefits to make your company more appealing to job seekers. 

Even though this may seem like an additional expense, if you make the position more desirable, you can save tons of money on recruiting or advertising. 

Finally, one of the best ways to reduce hiring costs is to reduce how frequently you need to hire. Improving company culture and addressing employee concerns can help reduce turnover and improve your brand as an employer. 


As we have seen, there’s no simple answer to the question of how much it costs to hire a new employee. Figuring out what your business spends on hiring involves totaling all hiring costs per year and dividing that by the number of new hires successfully onboarded. 

If you’re looking to improve your process or reduce your costs, you may want to take a look at your recruiting metrics.

Overall, spending money on hiring is necessary for running a successful business, so its a good place to invest resources into your business. Still, utilizing recruiting software and taking steps to streamline your hiring process can decrease costs and increase effectiveness. 

Cost To Hire an Employee FAQs

Why is it essential for businesses to consider the true cost of hiring a new employee?

Hiring costs can impact a company’s bottom line and profitability. By carefully managing recruitment, screening, hiring, and onboarding costs, businesses can reduce their hiring expenses and increase the return on investment of each new hire.

How can businesses reduce the average cost of hiring a new employee?

Businesses can reduce hiring costs by developing an effective recruitment strategy, leveraging employee referrals, and using technology to streamline hiring. It will also help to make the hiring process as efficient as possible, which can reduce the amount spent on recruiting salaries.

How does employee retention affect hiring costs?

If you want to keep hiring costs low, take steps to ensure employees are satisfied in their new roles. Otherwise, you may experience high employee turnover and soon find yourself back at square one of the hiring process.

How can businesses ensure that the cost of hiring a new employee is worth the investment?

Ensure the cost of hiring a new employee is worth the investment by setting clear performance metrics and goals, providing ongoing feedback and support, and investing in employee development and retention strategies. By doing so, businesses can maximize the return on investment of each new hire.