First year of employment costs companies almost double staff member’s salary

The true cost of hiring staff is almost double their salary during the first year of employment, a study by leading serviced offices provider BE Offices (BE) has revealed.

Based on current Government figures BE closely examined all the costs of employing a new member of staff on an average annual salary of £27,600 and discovered that it would cost a company more than £50,000 in the first year.

One of the highest cost elements is recruitment. Typically, recruitment consultants charge between 20-30% of the employees’ first year salary. This equates to a cost of between £5,000 and £8,000 for someone on the Government estimated average salary.

On joining a business the cost of employment continues to escalate. Government figures indicate that the typical bonus is 6% of total pay, resulting in an annual bonus of £1,656 for someone on an average salary, while National Insurance at the standard rate is 13.8% of pay, which equates to £4,037 a year.

Compulsory pension auto-enrolment means employers have to pay 1% of an employee’s monthly salary towards a pension. This is currently £276 a year but will rise to 3% or £828 a year by April 2019.

Bersin & Associates, the HR research organisation that is part of Deloitte, estimates that the average UK company spends £1,068 per employee a year on training, while The IPD Blue Chip Office Index calculates it costs employers a further £4,800 in office space and equipment.

Finally, BE points out that there are a series of other costs that can include holiday cover, maternity/paternity leave, sick days, company cars, software licences and more. This can total as much as £8,000 a year.

As a result, the £27,600 salary becomes a £50,269 annual overhead.

Commenting on the findings, BE Offices HR Director Nazia Ahmed said: “The total cost of hiring a new member of staff can be higher than it first appears. Companies – small businesses in particular – need to budget carefully when taking on new staff to ensure they are not overextending themselves and creating unnecessary financial strains on the company. However, employees are a firm’s best assets and will underpin its future growth; therefore taking on new people is essential for expansion. Companies just need to be aware of the true cost of taking on new staff.”

To help guide companies through the associated costs of employing staff, BE has produced a simple infographic, which you can view HERE.