Fact: Hiring costs are steep. Between employee wage and payroll taxes on one side and recruiting costs on the other, even small businesses can end up spending five figures per new employee. Ultra-low unemployment rates, coupled with an aging workforce and greater affinity for independent work, have been also driving the hiring costs up year-on-year.
The average cost per hire was $4,129 in 2019 but rose to $4,700 in 2023, which is a 14% increase.The Society for Human Resource Management (SHRM)
In reality, however, the cost of hiring an employee can be much higher for certain positions currently experiencing high talent shortages — think cybersecurity, engineering, or nursing. Likewise, the average cost per hire for an executive position is $28,329!
So…what’s the real cost of hiring an employee these days? We’ve crunched some numbers and sourced statistics to help you estimate the true cost of hiring an employee for your company in 2024. First, we’ll walk you through some costs to consider, and then we’ll look at how to tie those costs together and optimize your total investment.
TL;DR — Key Takeaways
The standard formula for calculating the total cost of an employee is (external recruiting costs + internal costs) divided by the number of hires = CPH.
External recruiting costs include all spending on talent acquisition contractors, staffing agencies, or other external service providers that help you fill in open positions.
Internal recruiting costs include spending on maintaining your HR function, plus everything you spend during your hiring process — job ads, hiring events, HR software, pre-employment assessments, and other admin activities.
To estimate the true cost of a new employee, you should also factor in the employee’s wages, payroll taxes, benefits, bonuses, and other corporate perks. These give you a more comprehensive cost.
Apart from the hard, quantifiable hiring costs, you should also mind soft costs — direct and indirect expenses companies incur when bringing new employees on board. These can include initial loss of productivity when a new team member arrives, as well as management time spent on employee orientation and training.
Factors like the speed of hiring and the quality of new hires will also directly affect the cost-per-hire metric. So does the extra time hiring managers spend on resume reviews and interviewing. Look to streamline these processes to maintain leaner costs.
Hard vs. soft recruitment costs
The total cost of hiring new employees includes both hard and soft factors.
The hard costs of hiring include all spending unavoidable spending on talent sourcing, selection, and onboarding, which average about $4,700 per employee. You should also factor in the extra costs of running your HR department and total workers’ compensation.
“Of the [total recruitment] costs, I would say 30 percent to 40 percent are hard costs, and the other 60 percent are soft costs.”Edie Goldberg, SHRM Foundation chair-elect and co-author of the book The Inside Gig
Soft recruitment costs are direct and indirect expenses companies incur when bringing new team members on board. These include time on new employee support, onboarding efforts from the internal HR team, and lost productivity of all people involved in coaching the new hire.
Soft recruitment costs are harder to quantify, but they can increase the true cost of hiring by 2X to 3X times, both for a full-time and a part-time employee.
|Hard Costs: Easy-to-quantify, direct costs coming out of your hiring budget (e.g., training costs)
|Soft Costs: Ancillary, indirect spending of corporate resources (e.g., the learning curve of new hires)
|Recruitment costs (HR salaries, premium job boards, social media ads, etc.)
|Managerial time spent on recruitment, interviewing, and training
|HR software (ATS, skills assessment tools, onboarding apps, people management platforms, etc.).
|Impact on communication dynamics and team synergy
|Compensation (employee wages, benefits, bonuses, perks, payroll taxes)
|Knowledge transfer from current employees to a new hire
|Onboarding (structured training, welcome kits, new equipment, etc.)
|Initial loss of productivity during the adaptation period
|Miscellaneous admin costs (interview scheduling, background checks, legal contracts, etc.)
|Organizational disruption during onboarding and the training period
7 most common recruitment cost drivers
To understand your total recruitment costs and have a more accurate overview of your cost to hire, it’s helpful to understand the most common hiring costs across any industry. Each of these contributes to the overall cost of hiring a new employee.
1. External hiring team/recruitment partner costs
Human resources is one of the top three biggest outsourced functions in business, alongside finance and IT. This is typically because, for many companies, having an internal HR team doesn’t make economic sense.
Different types of recruiters, staffing agencies, payroll specialists, and digital startups offer competitive performance-driven pricing for hiring an employee.
Outsourcing recruitment processes makes perfect sense when you:
✅ Have limited internal HR resources (or none at all) and need to hire for specialized roles
✅ Experience a period of rapid expansion and want to mass hire high-quality candidates fast
✅ Hire occasionally (fewer than ten people annually) and don’t want to shoulder the overhead costs of full-time employees
✅ Plan to hire on-site, hybrid, or remote workers internationally and don’t know the specifics of local labor markets or how to manage an international employee’s wages
✅ Need seasonal workers and want to have more hands on deck during busy periods (e.g., before Christmas)
✅ Struggle to source senior or executive-level candidates for mission-critical positions and lack industry connections
✅ Would rather focus on core business functions as a small business owner, instead of hiring employees
An external recruiter (or an agency) brings extra expertise to your hiring process and, oftentimes, access to a unique talent pool. For smaller companies, external recruitment partners help free up internal resources. For larger enterprises, agencies bring extra speed, flexibility, and cost-efficiency into the hiring process.
Cost-wise, recruiting process outsourcing (RPO) can be 1.6x cheaper than maintaining a large internal talent acquisition team — $311,220 vs $525,480 annually.
Here’s how the cost per hire differs by fulfillment method, according to SciBio:
💰 External contract recruiter: $10,736
💰 Internal TA team: $14,318
💰 RPO firm: $8,961
On average, budget anywhere between 15 to 25% of the employee’s annual salary for external recruiting costs. Depending on the employee’s salary range, this is how much you could be paying a recruitment agency:
|Employee Base Salary
2. Internal HR team
Having an internal recruitment team makes perfect sense for mid-to-larger organizations. However, an internal team comes at a price. At a minimum, you’ll have at least one HR manager to oversee the hiring process. Salaries differ across the board, but general estimates are anywhere from $104,681 and $133,000 in the US and €75,370 to €107,295 across Europe.
Getting assistance with hiring from an in-house talent acquisition employee will save 15 hours of total management-time-per-hire (MTPH) and approximately €880 in management costs when hiring new employees.Recruiters.ie
An HR manager runs the entire recruitment cycle — from creating a job description and promoting it on job boards to candidate screening, sourcing, and shortlisting. Of course, the HR manager also handles other talent management processes, including employee onboarding, retention, and professional development, among others.
Larger organizations have several talent acquisition (TA) specialists helping the HR manager with recruitment and employer branding activities. Talent acquisition specialists mostly focus on candidate sourcing and pre-employment screening.
The biggest expenses for operating an internal talent team like this include:
Salaries, payroll taxes, benefits, and bonuses
Professional development and training cost
Recruitment advertising expenses
Employer branding activities
Hiring tools and software platforms
Employee overhead costs
Compliance and legal costs
While this might seem like a lot of cash just to attract a new hire, these expenses translate to multiple benefits, including the cost-efficiency of high-volume recruiting (compared to an external recruiter), improved candidate experience, better internal talent knowledge, and greater control and customization of recruiting plans.
To calculate the cost of hiring employees with an internal team, run the following calculation:
Estimate the TA specialists’s hourly rate. For example, a €55,000 annual salary breaks down to €25/hour.
Determine how much time a TA specialist spends on sourcing a new employee. For example, maybe one person spends 30 hours on average, or €750 total (using the €25/hour estimate) when hiring an employee, and your HR manager spends 15 hours at €50/hour for a total of €500.
Factor in extra overheads including advertising costs, per-user software licenses, premium memberships, etc. For this example, we’ll total this up to an additional €500.
Add everything up. The cost per hire in this scenario will be €750 + €500 + €500 = €1750.
The above calculation is far from perfect. You may also incur additional costs such as employer taxes and benefits, performance-based bonuses, or spending on creative recruitment marketing activities. Check the latest industry benchmarks for more accurate cost estimates.
The cost-per-hire recruiting metric is directly connected with time-to-hire. The longer it takes to fill an open vacancy, the higher your internal recruiting costs will be. To keep both numbers in check, look for opportunities to optimize your recruitment process — introduce extra HR technology or experiment with new sourcing strategies.
3. Talent sourcing costs
Talent sourcing costs include everything companies spend to attract top talent to open positions.
Job board fees are an almost unavoidable hiring cost (unless you’re prioritizing other strategies like campus recruiting or direct head-hunting). Popular platforms like Indeed and LinkedIn have a pay-per-click model, where you get billed for each click on your job posting. Others charge a flat subscription fee per month.
Here are some price ranges from general and specialized job boards:
➡️ LinkedIn: $1.20 to $1.50 per click on your job ad, depending on the job title, location, and competition
➡️ Indeed: Between $0.10 to $5 per click on a promoted job post, but you can set a capped daily/monthly budget
➡️ We Work Remotely: From $299 per month for one post
➡️ Wellfound: This platform has a freemium plan, with extra recruiting features available from $499/month
To attract a better caliber of applicants, prioritize niche job boards. For example, Remotive attracts a ton of tech workers, while Mediabistro is the place to look for creative talent (designers, journalists, marketers, etc.).
If you’re open to hiring remotely or want to hire a freelancer, you can also consider talent matchmaking platforms. Startups like Arc and Talent.io promise to match you with vetted development talent (for a higher fee, of course!).
You can also explore other recruitment strategies like referrals from current employees, internship programs, or creative social media campaigns. Each of these also has an associated cost, so ensure you’re monitoring sourcing cost and efficiency for each channel.
4. Pre-employment assessments
Skills-based hiring is replacing the traditional hiring process, which is rooted in proxy requirements, like college degree completion or years of experience in the role. Instead, when using talent assessments to hire an employee, HR managers use skill tests to determine the candidate’s actual competency.
Over half of employers now use pre-hiring employment tests to pre-screen candidates and benefit from faster, less biased, and more data-driven decision-making. This is because pre-employment assessments offer a standardized way to evaluate the applicants’ competencies and cognitive abilities.
Effective skills tests can be role-specific or skill-specific or even aimed at assessing a specific soft skill (such as communication abilities or remote work readiness). However, like any other recruitment tool, these come at an extra cost — anywhere between $20 to $500+ per seat per month.
When considering pre-employment testing tools, pay attention to the following:
👍 Relevance. General personality tests are largely situational and don’t predict future job performance, unlike skills-based assessments. General cognitive ability (IQ) tests also don’t offer much insight into the candidate’s experience levels.
👍 Test library coverage. The best platforms offer pre-made skills tests for a variety of roles, technical competencies, and soft skills.
👍 Customization. Look for platforms that let you mix and match questions from their test library (plus add your own ones), rather than just provide standardized cognitive ability tests.
👍 Extra features. Many pre-employment assessment platforms also include applicant tracking features, candidate feedback tools, anti-cheating, and smart workflow automation features that save time and money for your team.
The last one is important to ensure you’re getting use out of what you pay for! For instance, with Toggl Hire, you get a full suite of recurring tools, including customizable test assessments, homework assignments, and async video interviews — all scored automatically with our smart algorithms. You also get access to ATS-like features, including a convenient portal for talent pool management and automating interviews.
5. Background checks and security clearance
Background checks are an unavoidable cost of hiring in certain industries like education, finance, and healthcare, among others.
A standard background check includes verification of education, employment history, and criminal records. A standard background check costs as little as $10 or up to $2,800, depending on how detailed you want to go.
Jobs in the government and defense sectors may also require specialized security clearances. In the US, for example, over 4 million people hold security clearances from respective authorities. The costs for obtaining respective clearances vary by country. In Australia, the fees range from AUD $442 to AUD $15,280. In the US, fees range from $140 to $5,410.
6. Salary, benefits, and bonuses
As soon as you finish onboarding a new employee, you’ve got to start paying employees’ wages. Depending on your structure, this will mean weekly or monthly wage salaries going forward into the future.
New employee costs include:
Annual salary: Base pay plus overtime
Taxes: Social Security, state unemployment tax
Benefits: Pension, disability coverage, health coverage
Bonuses: Both yearly performance and any signing bonus
Perks: Home office budget, reimbursed training expenses, etc.
In many countries, employer taxes, and benefits can make up anywhere between 1.25 to 2.5 of the base salary.
For example, in the US, the cost of hiring a new employee for a base salary of $50,000 is between $62,500 to $70,000 per year. In France, hiring an employee for a €80.000 salary will cost about €116.000. Long term, most employees expect salary bumps, usually in line with your country’s inflation and their professional development plans.
To improve employee retention, many companies also entice new employees with sign-up and relocation bonuses, premium health insurance coverage, and a plethora of other in-office and remote work bonuses — from free coffee and catered lunches to tuition reimbursement and mental health services.
7. Onboarding and training costs
True recruitment costs also include money you spend on onboarding a new employee and training them. Onboarding and training costs include:
💻 Equipment: Laptop, phone, software licenses)
📚 Formal training: Diversity training, compliance training, skills development, courses
💬 Employee support: Time that other team members spend supporting new hires
💥 Productivity costs: Reductions in productivity as the new hire gets up to speed
To help you benchmark where you’re at with the last point, know that it takes 8 to 26 weeks for an employee to achieve full productivity. During this time, organizations are essentially losing money as the new employee costs more than they’re earning for the company.
Companies spend $1,280 per employee on training annually, with the average cost per hour of training being $103. Total onboarding costs, in turn, run higher as you also need to factor in extra support, loss of productivity, and misc costs on onboarding documents or software.
On the brighter side: An effective onboarding process improves new hire retention by 82% and productivity by over 70%, according to Brandon Hall Group research. So it makes the investment worthwhile!
The total cost of hiring new employees
To calculate the total cost of hiring a new team member, let’s add up all the common cost areas. Here’s an example of the total one-off costs of hiring an employee.
|HR Manager (80 hours)
|1-month job posting on Monster
|1-month subscription to Toggl Hire
|Basic background check
|New laptop and business software
|Employee support (40 hours)
|New employee signing bonus
🥁 Total = $12,724
The actual cost of hiring is steep (although many of these expenses are fully tax deductible 😉), but calculating it gives you a good sense of the real costs of your workforce.
The exact costs will also differ depending on whether you’re hiring for a junior vs. senior role. Executive hires will not only expect a higher salary range but also more perks and a larger sign-on bonus. But seasoned pros will require less structured training, compared to more junior highers.
You can also get a better idea of the cost of hiring an employee in 2024 from the following studies:
- The latest benchmark the Society for Human Resource Management puts the average cost to hire an employee at $4,700, with around 44 days to fill a position.
- Appcast estimated that the average cost per online job application is $28.47, up by 43% compared to 2020. Average recruitment marketing costs were $225 for construction positions (the lowest) and $260 for engineering & science positions (the highest).
- According to the Australian Human Resources Institute (AHRI), the average cost to hire is $23,860 per candidate in the region, with the average time-to-hire being 40 days in Australia and 50 days in New Zealand.
- On average, internal HR teams spend $2,524 per employee annually in miscellaneous costs, with the average HR function expense rate being 0.74% of the company revenue, according to Gartner.
Every company strives to have a cost-effective recruitment process. While the money factor is important, it doesn’t tell the whole story when calculating recruitment costs. You’ll have to factor in other tradeoffs, including the following.
Speed vs. cost
An extended time-to-fill for open rolls increases both direct and indirect recruiting costs. With this talent acquisition model, HR teams spend more time and money on sourcing new talent, while the company at large experiences a productivity loss.
The average cost of replacing an employee is 1.5X to 2x the employee’s annual salary. For a 100-person company with an average employee’s wage of $50K per year, employee replacement costs can balloon to $660,000 to $2.6 million per year!
You can save money in the long run by spending more on closing a job opening faster. For example, by having a bigger job promotion budget to attract high-quality candidates or by using skill assessments to pre-screen applicants faster.
Quality vs. cost
It’s super tempting to focus only on reducing your cost-per-hire metric. We get it — times are tough. But doing so can have a toll on your workforce quality.
Talent acquisition is all about getting great people into your business who don’t just have the skills to perform the role but align with your organization’s culture and values. Getting this wrong can cost the company more money further down the line due to a lack of productivity and a slower learning curve.
The average cost of a bad hire is a staggering 15%-21% of the employee’s salary, depending on seniority.
How to calculate recruitment costs in 5 steps
Now it’s time to run the numbers yourself! Here’s how to calculate the cost of your new hire step-by-step.
1. Start with the basic formula
The general cost-per-hire formula is a pretty simple one on face value, but a few different variables go into bringing it all together.
2. Forecast your hiring volumes
To estimate your company’s cost per hire over a longer period (e.g., a quarter), evaluate your resourcing profile. Talk to department leads and hiring managers about their talent gaps and hiring plans for the next year.
Department leads will know the current number of individuals in each team and whether that number will (or should) remain static or is subject to change in the short term. Senior executives will have a more strategic view of the company and be able to provide insight into future growth plans or transformation initiatives that may need extra staff.
Then, of course, there’s natural staff turnover. Hopefully, you’ll have some past data to lean on to understand the natural churn of employees within your organization. If not, the average US turnover rate sits at around 17%.
With those areas covered, it works best to plot the number of expected hires by the department in a table. You’ll see an example of this below.
Now we have the bottom part of the formula complete!
3. Estimate all relevant recruitment costs
You can complete the top row of the formula by bringing together the internal and external recruitment costs. Some of these will be fixed, and some will be variable based on your hiring volumes.
For example, the employee’s basic salary or state health insurance contributions will be fixed. But job advertising costs will be incurred incrementally based on the number of vacancies you post.
Don’t forget to factor in the extra soft recruitment costs! This is where many small business owners or newer HR professionals miscalculate recruitment costs, as they forget to factor in things like benefits cost, money spent on onboarding, etc.
4. Do the math
Now, let’s run the numbers together for several hiring scenarios.
💰 Hiring budget for small businesses: $20,000 / 5 new hires = $4,000 per new hire
💰 Mass hiring program for college graduates: $35,000 / 10 new hires = $3,500 per employee
💰 Annual enterprise hiring budget (cross-function): $300,000 / 42 = $7,143 per employee
If you need deeper insights, segment the total costs and number of hires down by job function. Doing so can help you identify more expensive roles to fill and provide further insights for informing your recruitment strategy.
5. Track and monitor your costs
Monitor your cost per hire over time alongside other recruitment metrics to better understand talent dynamics, identify waste areas, and optimize your recruitment process even further.
If your costs are continuously increasing, implement cost-effective recruitment best practices, such as building out a talent pool of potential applicants, using skills assessments to streamline candidate screening and selection, or experimenting with new automation technologies.
Invest in internal HR function. Smaller businesses often rely on external recruitment agencies for longer than needed. If you’re growing fast, invest in an internal HR function to shave off some costs.
How to optimize your recruitment costs with Toggl Hire
To spend less on hiring, help your recruitment teams work smarter, not harder. This is exactly what we’ve been doing at Toggl Hire. By incorporating skills testing into our hiring process, we save, on average, 22 hours per candidate on sourcing, screening, and shortlisting — an equivalent of $78,000 in savings!
Toggl Hire helps recruiting teams:
💬 Speed up candidate screening without quality tradeoffs. “Since adopting Toggl Hire in June 2022, we’ve been able to quickly and efficiently verify candidates’ knowledge on their own time – saving us over 328 hours in candidate screening,” shared Miriam Fries, Talent Acquisition Manager at Hilti.
💬 Attract better quality of talent. “With Toggl Hire, I can be sure that the candidates we spend time interviewing have already been pre-qualified and match our main criteria”, said Anu Einberg, CEO at Mooncascade, who now attracts 4.5X more qualified candidates than before our skills tests.
💬 Exercise better judgment. “In just a day, we had over 75 candidates, and 3 of those were already marked as ‘potential hires’. It’s a great feeling knowing I didn’t have to go through 70+ resumes to find the perfect candidate”, cheered Dunja Lazic, VP of Marketing at Sked Social, who can confidently pre-screen over 800 applicants for the role in several days.
💬 Avoid bad hires. “Toggl Hire’s approach is great. They first get you a large number of candidates, and they then pick out the best candidates in that candidate pool. So overall, the quality of the candidates that you end up interviewing and hiring is higher,” shared Ho Yin Cheung, Founder at Riotly Social, who could instantly identify 37 ‘potential hires’ for a backend engineering role.
By combining skills assessments with ATS-like capabilities, our platform helps recruiters verify the technical, soft, language, and cognitive skills of applicants to supply you with objective data on their competency levels. For smaller teams, Toggle Hire can be an all-in-one hiring tool, replacing a multitude of expensive software subscriptions.
We have a super transparent pricing model with a robust free plan and monthly subscriptions going for as low as $25/month for an unlimited number of user seats. Start reducing your total cost of hiring an employee today by learning more about how pre-employment testing works.
Elena is a freelance writer, producing journalist-style content that doesn’t leave the reader asking “so what." From the future of work to the latest technology trends, she loves exploring new subjects to produce compelling and culturally relevant narratives for brands. In her corporate life, Elena successfully managed remote freelance teams and coached junior marketers.