3 min read
When you are planning to expand your team the first thing that probably springs to mind is the employee's salary.
However, the real cost of hiring a full-time employee goes well beyond their base compensation. As a business owner or decision-maker, understanding the intricacies of these costs is crucial for effective budgeting.
In this article, we'll delve into the various factors that contribute to the total cost of a full-time employee, providing insights to help you make informed decisions before you make the jump and start hiring new employees for your team.
Calculating Total Employee Cost
The total cost of an employee encompasses more than just their salary; it includes additional expenses incurred throughout the hiring and employment process. A commonly used formula estimates that in Australia the average total cost for an employee to be between 1.25 and 1.4 times their base salary.
Base Compensation
As mentioned above, base salary is most likely the first thing that comes to mind when you hear the term "employee cost."
Base compensation refers to the amount that you will pay an employee, which can be either an hourly wage or a fixed salary. Although base pay may be the largest portion of the employee costs, it's by no means the sole component. Business owners often run into problems (and go over budget) when they neglect to consider the other aspects that might also increase employee costs and don't consider all cost portions as a whole.
Hiring Costs
It obviously costs money to pay a new hire, but hiring a new employee also costs money, whether you handle the process internally or externally.
The process of hiring itself incurs various expenses that contribute to the total cost of an employee. These include fees for job postings on platforms like LinkedIn and Seek, the investment in recruiting software or an applicant tracking system (ATS), and the time and resources spent by your internal HR team.
The cost of a new hire can significantly drive-up total employee cost—and how much depends on your hiring practices.
Jobs posting fees:
To attract candidates, you often need to publish your vacancy on job boards (such as Seek, Indeed or LinkedIn). These job boards usually charge for job vacancy advertisements.
Recruiting software:
An application tracking system (ATS) or recruitment software is a must if you want your recruiters to be successful in managing the hiring process.
Time:
The time, effort, and resources your recruiter and/or HR staff expends to fill each of your roles must be taken into account when calculating the cost of hiring a new employee.
Background checks:
The cost of a background check ranges from $20 to $100, so if you have several individuals you are actively considering, you should plan ahead for these.
The cost of preparing and conducting interviews:
Interview preparation entails preparing interview questions and making phone calls to arrange the interview. The average number of candidates interviewed is six, so after conducting background checks and pre-screening and undertaking the interview, the costs add up very quickly.
The emotional cost:
Sometimes, the toll it takes on your hiring team, dealing with the demands of the recruitment process, can be a hidden cost. Mental exhaustion and fatigue can impact focus and affect the productivity of your team members.
The Costs of Onboarding & Training
The journey doesn't end with the offer letter. Onboarding and training expenses include the cost of IT equipment, formal training courses, employee support, and productivity loss as the new recruit gets up to speed. Research suggests it takes between 8 to 26 weeks for an employee to achieve full productivity, during which organisations may experience a temporary dip in earnings.
Factors Contributing to Employee Cost:
Overtime:
According to NES, working hours in Australia should not exceed a maximum of 38 hours per week. Overtime pay can vary depending on the industry and what is in the contract and is an additional factor to consider.
Payroll Taxes:
Australian employers must pay specific tax contributions on behalf of employees, including:
- State payroll tax ranging from 4.85% to 5.5%
- Relevant regional contributions
And these add up to the overall employee cost.
Workers Compensation Insurance:
Under Australian law, employers must have insurance to cover the employees in case of sickness or injury related to work.
Leaves (Paid Time Off):
All employees are entitled to paid annual leave of 20 days per calendar year. This is true for both full-time and part-time workers, although not casual workers.
Employees are also entitled to take the eight national public holidays and additional territory ones. This typically adds up to 14 public holidays per year. Apart from these, employees are entitled to paid sick leave, long service leave, and parental leave.
Superannuation or Retirement Plans:
Superannuation is a mandatory pension scheme that employers must pay for their Australian employees. The minimum requirement for employer superannuation payments is 11%. Employers must pay this minimum contribution, known as the Australian Super Guarantee, on salaries up to $57,090 Australian dollars (AUD) per quarter, and will increase to 12% by 2025.
Health Insurance:
Businesses that offer health insurance plans can be attractive to Australian workers, especially after-tax increases in recent years.
Life Insurance:
While obligatory superannuation plans will offer at least minimal life insurance and disability coverage, it is typical to offer higher levels of protection to attract the best talent.
Conclusion:
Understanding the real cost of a full-time employee is essential for business owners and decision-makers. Beyond the base salary, considering hiring, onboarding, and ongoing expenses is crucial for effective budgeting. As an offshore IT talent and recruitment service provider based in Australia, Dijital Team can provide you the assurance in setting up remote IT teams offshore, providing cost-effective solutions without compromising on talent.
Contact us to explore how you can build your IT A-Team in Sri Lanka and drive your business growth.