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Why Hiring You is More Expensive Than You Think

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Everyone knows it’s difficult to get a job these days – very difficult. And yet, it’s likely even harder than you think.

Most people think unemployment is high because so many jobs are outsourced or mechanized, and business is bad so companies are laying people off. As a result, there are more job seekers than jobs.

These are certainly contributing factors, but as usual, there’s more beneath the surface.

Basically, it’s expensive as hell to hire you.

Why you need to understand how expensive you really are

It’s important for you as an employee or prospective employee to know about these costs for the same reason empathy is important in everyday life. You need to understand where your employer is coming from if you want to speak his or her language. If you want to sell yourself as someone who will add value, you need to be aware of how much you cost before you can begin to make a value proposition. If you’re unaware of how truly expensive it is to hire someone, it’s tough to show your employer how much you will add to that company.

For example, if you go into an interview assuming your cost to the company would only be your salary, say $60,000 per year, but the cost is actually $100,000 or more, you’ll likely underestimate the value you need to add.

The missing piece

Most employees and prospective employees have no idea what costs go into hiring a single employee, let alone several dozen or hundred, because they never see the costs first-hand. Keep in mind that all of the expenses listed below are in addition to your salary. Most people think their salary is the main expense, and while it’s probably the largest, it’s just one of many costs to hire.

Payroll taxes

When you get your paycheck or direct deposit stub, you see your gross earnings, net pay after taxes, and any other deductions you pay into (401K, benefits, etc.).

What you probably don’t see is that the employer matches your social security and Medicare payments. If you pay $150 per pay period in social security and Medicare, then your employer also pays that amount, or $300 per month (though, because of a recent payroll tax break, employees actually pay less now. But for easy math, let’s assume it’s a 1-1 match). For this example, if the company has 10-20 employees, they are paying $3,000-6,000 per month, just in payroll taxes.

Issuing paychecks costs your employer a lot of money too. They either staff a payroll department, hire a payroll processing company, or both – and both are expensive. Obviously these things are not put in place just because of you, but costs add up as the employee count grows.

Unemployment insurance

Here’s an area that’s grossly misunderstood. In my Brazen post about how to make money during your job search, one commenter thought employees “pay into the system,” despite having just read that unemployment insurance is an employer-funded program.

To be clear, unemployment insurance is an extra expense that only employers pay. Simply put, employers contribute to a state-level pool (though there is a federal pool as well), and when unemployed people file for or collect unemployment benefits, the state pays them from that pool. It’s a way for the state to ensure it doesn’t bear sole responsibility for supporting unemployed people.

Workers compensation insurance

Again, this is a cost the state requires employers to pay. Depending on what kind of work you do, your employer almost certainly has a state-mandated workers comp insurance policy that covers you.

Each state’s requirement is different, but some states require a policy on even the lowest risk office workers. Depending on the kind of work being performed and the number of workers, workers comp insurance can be a few hundred dollars or thousands per year.

Benefits

Health insurance, 401ks, paid time off – these are even more costs your employer faces per employee that go unseen. And benefits are usually much more expensive than payroll taxes or unemployment insurance. For example, Starbucks spends more on employee health insurance than on coffee and in the past General Motors spent more on healthcare than on steel. The incendiary politics of healthcare insurance aside, employers generally pay a ton of money for this employee benefit.

It’s easy to take your 401k for granted, but the programs are expensive for your employer just to set up. Then, if the employer matches employee contributions (which many companies do), that’s another per-pay period, per-employee cost the employer faces. 401k administration fees and matching expenses are yet more costs associated with hiring, and because they never see or hear about those expenses, employees tend to be ignorant about them.

Training

Every company has their own protocol when it comes to document management, expense reimbursement, customer relationship management (CRM), sales calls and countless other policies. As a result, most new jobs involve a lengthy training session, where new employees are sequestered for a few days or weeks to learn all the ins and outs of the new company. For larger firms, this might even mean the employee(s) traveling off site to corporate headquarters for training. These training programs are very expensive, both in time and money.

A company has to pay a dedicated team to teach new employees – meaning salaries, benefits and additional payroll expenses (see above) for each of the trainers. Then they have to pay for teaching materials and, in some cases, travel for the employees to the training location. Some people receive full pay during training, some get minimum wage until they’ve passed certain tests to prove their training was successful. Training is a long and expensive per-employee cost.

It’s important to understand why hiring you is so difficult, not as an exercise in negativity, but so you know exactly what you’re up against. If you know why something might be keeping you back, you can pivot, adapt and overcome. Keep these costs in mind when interviewing and you’ll be able to pitch yourself as a value-add, rather than simply another cost.

Tim Murphy is founder of ApplyMate.com, a free application tracking tool.

Brazen powers real-time, online events for leading organizations around the world. Our lifestyle and career blog, Brazen Life, offers fun and edgy ideas for ambitious professionals navigating the changing world of work.

  • http://twitter.com/munir20 munir akhtar

    Nice Post

    • Tim

      Thanks, Munir!

      –Tim

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  • http://twitter.com/CareerSearchAM John U Lord

    Good, honest post. For folks not involved in HR some of this stuff isn’t obvious or something that they think about often. When it comes to hiring, everyone involved has a stake in the process.

    • Tim

      Hi John,

      Really glad you enjoyed. I agree, unless you have employees or work in HR, this info is totally lost in the background. Hopefully this helps people realize what the person sitting across from them in an interview is considering.

      Thanks for reading!

      Tim

  • http://www.mycollegesandcareers.com/ Sarah

    That’s not to mention the cost of high turnover to companies.

    • Tim

      Hi Sarah – good point. If hiring and paying employees is expensive, it will cost even more if employers have to go through the motions of interviewing, training, etc. many times. Thanks for adding!

      Tim

  • sleek website

    This is truly a great read for me. I have bookmarked it and I am looking forward to reading new articles. Keep up the good work!

  • Banking Analyst

    “To be clear, unemployment insurance is an extra expense that only employers pay.”

    Not so in Canada.

    • Tim

      Haha – very true. Thanks for qualifying.

      Tim

    • TimBer

      Not so in most of Europe.

  • Scottfmessinger

    This is a fixed cost that employers should factor into their business plan. If they don’t, they are incompetent, and you shouldn’t work for them anyway.

    • Tim

      Hi Scott,
      Thanks for the comment, though I have to disagree with you.

      Employment costs are far from fixed. Regulations are changing all the time, resulting in higher taxes paid, higher wages paid (in the case of min. wage), and higher health care contribution requirements. If the company expands, it’s payroll costs expand too. These are major expenses that are constantly in flux, as is salary competition for the best talent.

      Now, maybe you meant these are “knowable” costs, rather than fixed costs, and if so, that’s definitely true. Employers surely know how much you cost, and as regulations etc. change they’ll adapt and make hiring decisions accordingly. My point was that it behooves job seekers to know a thing or two about some of those costs.

      As for business plans, many will tell you they aren’t worth the paper they’re written on, simply because so many “fixed” expenses are anything but. I don’t totally agree, but if you write a plan and launch a business, I guarantee you’ll be off in some of your cost projections. That’s just the way it goes.

      Anyway – thanks a lot for reading and for the comment.

      Tim

  • http://www.averagestartingsalary.com Sal

    Good post, I think most just people assume salary is all it costs, and most forget about not only hiring expenses but RECRUITING expenses, even if just paid job postings, where you have to put a bunch out or hire a recruiter for 10% of base salary to find the diamond in the rough.

    • Tim

      Hey Sal,
      Right on. The deeper you dig, the more costs seem to crop up. Thanks for helping make the point!

      Tim

  • http://www.getmyexboyfriendbackfast.com SteffL

    Not to mention bonuses. I’ve always open to the idea of an incentivised scheme where everybody stand to gain.

    • Tim

      Hey Steff,

      Thanks for the comment. Bonuses are, indeed, another cost that goes into hiring (in some cases). Though if you do structure the bonus as you described, ideally this “expense” will pay for itself before it occurs (whereas some of the others are upfront and harder to finance all at once). If it’s strictly a signing bonus, as opposed to a performance bonus, then that is a tougher up-front expense.

      Thanks again for contributing!

      Tim

  • http://www.drivinginstructortrainingu.com/driving-instructor-jobs/ John Driver

    Spot on, I read a stat once that an employee costs 20-30% as much as their salary to their company each month. People really need to think about that when they complain about not making enough.

  • Robert

    It just sounds like a bunch of excuses not to hire people. If your company is successful, then the cost of hiring new employees should be the least of your worries because you need the new staff to keep up with all the business that needs to be taken care of. What about the $2 trillion that companies are collectively sitting on and not hiring people? They can use some of that money to pay for hiring costs. If it is too expensive to hire someone, maybe they should examine their sales figures and see why they aren’t making more money.

  • Nrllanos66

    Excellent and realistic assessment of personnel costs. I was president of a small technology firm and completely agree with your advice. I might add that with regard to payroll taxes the payment has to be made fast. i.e. If payroll is on Friday the payment to the IRS needs to be made by the following Wednesday otherwise penalties and interest kick in. If the payroll is over a certain amount the payment has to be done almost immediately. This affects the company’s cashflow significantly. Health Insurance is another onerous drain on a small company’s cash flow.

  • http://www.brautkleideronlineladen.de brautkleider

    that is true! you are great

  • Tim

    Hey Tony,

    Excellent point. The time it takes to bring a new person up to speed is definitely a cost of hiring that person. Like most other expenses that come with hiring, this will ideally be an investment, but nevertheless, these things add up. And if an employee doesn’t work out, that cost hurts even more.

    Thanks for contributing and for reading!

    Tim