It is no secret that the true cost of an employee is significantly higher than just their salary. Even if you don’t offer benefits, there are certain expenses that cannot be overlooked while calculating the cost of an employee. Estimating an employee’s true cost requires consideration of several criteria. This includes the hiring and training costs, monthly salaries, benefits, taxes, overhead costs, and more. Hence, if you are planning to add a new member to your workforce you would want to consider these factors to ensure you hire right. Here are some factors affecting the true cost of an employee which you might want to keep in mind:

Recruitment and Hiring Costs

Hiring new talent is a critical function of an organisation. Every firm has a hiring budget that is meant for recruitment activities which include costs to fill in the vacancies, employee screening, and other overhead costs. A bad hire can ruin the investment and result in additional expenses due to re-hiring. Hence, recruitment costs make a vital part of a true cost of an employee to the company.

Salary and Benefits

Salaries vary depending on the industry, geographic location, level of the organisation, job profile, and a variety of other factors. While it is true that salary is the most basic inclusion when it comes to calculating the true cost of an employee, there are several other additional costs such as traveling allowances, workstation costs, food allowances, etc. Furthermore, other advantages like insurance, retirement benefits, relocation expenses, provident funds, stock options, other perks and bonuses, etc. must also be considered while estimating the true cost of an employee.

Training and Development

Training and development are a vital inclusion when calculating the cost of an employee. New employees undergo an induction program, where they get acquainted with the company and are trained to develop necessary skills for their job roles. Apart from this, companies also train employees on an ongoing basis to help them gain knowledge and skills to improve performance in their current roles. Development is more focused on employee growth, where organisations guide employees in developing skills to move to the next level. Hence, all these costs spent on employees must be considered while estimating the cost of an employee.

Paid Leaves

Business owners offer employees a set of paid casual and sick leaves. An employee is hired to help the business make more money. However, when employees take an offday, their productivity is zero; still the company pays for such leaves. While such costs depend on the size of the business, industry standards, and other factors, it is still an important part of the overall cost of an employee.


In addition to paying your employees, as a business owner, you may have to incur certain employment taxes such as social security, workmen’s compensation, and more. These employment taxes happen to cost an employer additionally. Hence, these form a vital part of an employee’s true cost.

Administrative Costs

The costs related to the physical workspace and utilities that are used must be considered while calculating the cost of an employee. These administrative expenses include:

  • Business travel
  • Rent
  • Technology systems like computers, phone, printer, etc.
  • Office supplies like pen, paper, etc. and more

Managing the true cost of an employee

Employees are expensive. The true cost of an employee goes beyond salary and benefits. All the above points are essential when calculating the cost of an employee. A bad or wrong hire can ruin the investment incurred and demand additional investment. This can take a toll on businesses, especially startups and medium sized firms. However, implementing correct strategies right from the recruitment stage will save you from this pitfall.

A comprehensive background screening in India must be done while hiring employees. Apart from traditional ways to pre-verify resumes, a detailed screening will ensure you hire right. After all, attracting top talent and retaining them will help you gain a competitive edge and also raise your company’s credibility. Investing in a background check program will ensure you get maximum returns on your human capital investment.