Have you ever considered what it actually costs to hire a new employee in your company? Many people only think about the salary, but there are many more costs associated with hiring. For you as an employer and business owner - regardless of industry - it's important to understand the total costs so you can make the right decisions.
In this blog post, we look at the different costs of hiring a new employee, both in the short and long term. We look at everything from recruitment and onboarding to ongoing expenses such as pension and social costs.
Finally, we'll also share some concrete examples of when it can be beneficial to choose a temporary solution over a permanent position, so read on!
Table of contents
The visible costs - more than just salary
The most obvious cost when calculating the cost of a new employee is, of course, salary. But remember that on top of the salary itself, there are a number of other fixed, statutory costs that are directly linked to employment and quickly add up to the total amount:
- Pension: Your contribution to the employee's pension plan.
- Employer contributions (ATP, AES, etc.): Various statutory contributions to social programs in the labor market.
- Insurance: Health insurance, work injury insurance and the like - essential safety nets for both employee and company.
- Holiday pay and time off: Although settled on an ongoing basis, these amounts need to be budgeted and set aside as they form a significant part of the overall package.
- Illness: Unfortunately, an unavoidable part of the equation. You have to pay sick pay for the first 30 days, which can quickly impact your bottom line in the event of unplanned absences.
Example: Imagine you hire an employee for 30,000 DKK per month. When all the direct costs and mandatory contributions and allowances are added up, the real monthly cost to your business can quickly add up to DKK 40,000-50,000.
That's a lot of money that requires careful budgeting!
The invisible costs - this is where the hidden costs are hiding!
This is where it gets really interesting. The "hidden" costs can make up a large part of your total personnel costs - and sometimes even more than the visible ones:
Recruitment:
- Job ads: Posting a position on relevant job portals can cost anywhere from a few thousand to many thousands of dollars.
- Time for screening and interviews: Who will read applications, sort through CVs, call and conduct interviews? Your own time is valuable, as is the time your existing employees spend participating in the process. These are hours taken away from core tasks.
- Background checks and reference checks: Even more time and potential costs for external companies if you want to be absolutely sure of your choice.
Onboarding and training:
- Lack of productivity: A new employee is rarely 100% productive from day one. It takes time to get to know systems, processes, tasks, products and colleagues. For many companies, it can take months before a new hire is fully self-sufficient. During that time, your investment in the employee may be greater than the value they create.
- Training colleagues: Existing employees have to spend time training the new employee, taking them away from their own core tasks.
- Courses and certifications: Depending on the job, specific courses, training or certifications may be required, which can be expensive and time-consuming to complete in order for the new employee to do their job.
- Continuing education: Many companies set aside a budget for ongoing courses, workshops or training to keep employees' skills sharp and up-to-date. This is a strategic investment in development, but an ongoing expense.
Administration and equipment:
- IT equipment: Computers, software licenses, phones - everything a modern employee needs to be effective.
- Workwear and personal equipment: This can include specific uniforms, company T-shirts, specialized tools or technical equipment unique to the specific role and industry.
- Workspace: Cost of desk, chair, possibly remodeling or adapting office facilities to create the right working environment.
- HR administration: Ongoing administration with payroll, absence tracking, contract management and use of HR systems. Although necessary, it costs time and resources.
- Expenses and per diems: If the employee is traveling, attending meetings away from home or has work-related expenses, there may be transportation, food and lodging costs that need to be covered or reimbursed. This can quickly become a significant and unpredictable expense.
Cost of redundancy:
- Notice period and salary during the notice period: All employees are entitled to salary during their notice period, regardless of whether they are working or laid off. This period can range from 1 to 6 months depending on seniority, and these are salary costs you are paying for an employee who may no longer be contributing optimally.
- Severance pay: If the employee has been employed for a longer period of time (typically 12 or 17 years), they may be entitled to severance pay under the Salaried Employees Act.
- Legal advice: In unfortunate cases, redundancies can lead to disputes, and the cost of lawyers and legal advice can add up quickly.
- Negative publicity and loss of productivity: A poorly handled redundancy can damage the company's reputation and affect the morale of the remaining employees, leading to a drop in overall productivity and an unhealthy work environment.
Example: A small IT company hiring a new programmer not only has to pay a salary. They also have to factor in recruitment costs (perhaps $15,000 for advertising and screening), a new computer ($10,000), software licenses (several thousand per year) and the time the experienced colleague spends mentoring and training the new hire in the first weeks/months.
It quickly adds up to a significant sum before the new programmer is up to speed. And if things don't go as expected, a notice period of, say, 3 months can mean an additional 120,000-150,000 DKK in unforeseen labor costs, on top of the initial loss of productivity.
So what does an employee actually cost?
In the blog post above, I've tried to create a clear overview of the costs involved when hiring a new employee.
There are many factors to consider and they will naturally vary from company to company and industry to industry.
While there is no definitive answer, I hope this post has given you a better understanding of both payroll and the other costs - both visible and hidden - that come with having employees.
Læs også: Min virksomhed mangler arbejdskraft: Hvad gør jeg?
4 situations where a temping solution can be a smart and economical solution
Okay, hiring a new employee can be expensive when we take all the above costs into account. But how can a temp agency become a relevant option for you when you need new employees and extra hands, or if you have a project that requires a very specific type of employee with specialized skills for a limited period of time?
Below I've found 4 specific situations where a temp agency can come into the picture and offer you a very flexible and often more financially advantageous solution.
When you need temporary coverage or extra resources
Do you need extra manpower during a peak period, to cover long-term sickness or maternity leave, or for a specific time-limited project? A temporary worker can step in at relatively short notice.
When the job is done or the period is over, the engagement ends - with no long notice periods, severance pay or long-term commitments. You only pay for the actual hours the temp works and the responsibility for salary costs, pension, vacation pay and sickness remains with the temp agency. This gives you clear and predictable costs as well as enormous operational freedom.
When you need specialized skills
In many cases, it can be difficult to find the right candidate with the exact skills and experience your business needs, especially for short-term or niche assignments. Using temporary staffing solutions gives you access to specialized skills that may not be available in-house or that you only need for a limited period of time.
These can be experts who can perform specific tasks without you having to invest in a permanent employee. This gives you the flexibility to adapt your workforce to your current business needs and ensures you always have the right expertise available exactly when you need it.
When you want to "try before you buy" - test an employee before hiring
It can be a great advantage to start with a try & hire process when you're considering hiring a new permanent employee. This allows you to assess whether the candidate is a good fit for both the tasks and the company culture before entering into a long-term employment agreement.
By starting with a try & hire process, you minimize the risk of misplacing potential employees, which can be both costly and time-consuming. You'll gain invaluable insight into the candidate's performance and integration into the team before making a full commitment.
When your employees often work away from the workplace
Avoid having to pay expenses and per diems. When you hire a temp through a temp agency, you don't have to manage and pay expenses and per diems for travel or other work-related expenses. This means less administrative work and fewer unforeseen costs for your business.
Imagine this: Your company lands a large but time-limited order that requires extra resources for the next six months. Instead of hiring a new employee with all the costs and obligations that entails, you can hire a temporary worker through Procur ApS. You only pay for the working hours for the six months and once the project is complete, you have no further obligations. This gives you tremendous financial and operational freedom!
Hire flexibly through us
Hiring is a big investment, and it should be. But for many companies, there are periods of fluctuating demand when permanent employment doesn't make sense - either financially or strategically.
Consider talking to us the next time you need skilled labor. We can offer you great flexibility and can save you a lot of headaches and money on the bottom line.
