What are the Costs of Hiring a New Employee?

One of the biggest hassles for any employer is the process of hiring new employees.

It is a long, drawn-out process, and can cause significant stress when a position must be filled quickly. On top of that, there are significant costs attached to hiring, in terms of both time and money.

The effects of a bad hire can also be felt all around the office. It can have a negative impact on your employee engagement, which can have long-term effects on your employee productivity, engagement and overall work environment.

In this article, we’ll establish some of the costs of hiring a new employee, as well as how to avoid a bad hire.

The costs of recruitment

Depending on the extent of your search for a new employee, and your company policy, the following costs need to be considered when searching for someone to fill a position within your company:

Advertising fees
If you choose to advertise anywhere besides your own website, you’ll most likely be looking at associated costs. These fees will vary depending on a number of factors – the type of media, the readership of the publication, and whether you post a one-time ad or opt for a long term advertising campaign.

Recruiter salary and benefits
Using a recruiter to advertise and hire on your behalf is a common hiring cost.

Employee relocation costs
Should your employee have to move or relocate for the job then the company may have to foot the bill to make this possible, adding further to the expense.

Employee referral bonuses
In many workplaces, an employee referral bonus scheme is in play – meaning, if an existing employee recommends someone for the position, and you hire them, that employee receives a bonus. This can be a costly program to have in place, but is a good incentive when it comes to employee engagement and recognition.

Sign-on bonuses
A sign-on bonus is a sum of money given to a new employee as an incentive to join the company. It is often used as a way of making a compensation package more attractive to a potential employee.


As you can see, there are multiple costs to consider when hiring an employee. We haven’t even examined the costs of reduced productivity, time spent in the hiring process, or the cost of training and outfitting the new employee. These costs can double in the event of an inadvertent bad hire – requiring you to go through the whole process all over again.

Aside from the personal costs, the rate of turnover for Australian companies has a huge effect on our economy, with staff turnover and all the processes associated with it being estimated to cost Australia around $3.8 billion per year.

In a poll, 41% of respondents reported the cost of a bad hire was over $25,000, while 25% reported a $50,000+ loss. The impact of a bad hire is reported to cause the following:

  • a 41% loss in productivity
  • a 40% time loss due to the hiring process
  • a 37% loss due to training costs
  • a 36% reduction in employee morale and motivation
  • a 22% negative impact on client solutions

The main causes of a bad hire include the necessity of filling the job quickly, insufficient knowledge or talent about the job and its requirements, and the failure to check references.

Thankfully, the latter is not common, equating to only 11% of bad hires. Thirty eight percent of the time, there is genuinely no reason for the bad hire to have occurred; it was simply a mistake.

So how do you decrease the chances of a bad hire?

Firstly, ensure that you know exactly what the job entails – it’s possible that the position’s requirements have developed over time, so an updated job description will ensure you only get applicants who are sure they can do the job well.

Noticing skills such as communication, manner of speech, and interaction is something that can be done during the interview process, and can give you a lot of information about what kind of worker the person is.

Offer staff referral bonuses to current employees; this means offering a reward should employees refer someone to you who is suitable for the position and turns out to be exactly what you were looking for.

Perhaps the most important thing though, is to check the applicant’s work history and contact each one of their references.

Hiring a new employee is a costly and time consuming experience, but done well with thorough research and the appropriate support, the costs of this process can be exceedingly lowered, benefiting you, your staff and your company.

For all your other employee management needs, give us a call today on +613 9982 1915.

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