Tips on hiring new employees

Taking on a new team member costs more than simply their salary. Learn what else you need to consider.

What to consider when hiring new employees +

Hiring a new employee costs more than simply their salary. In fact, when hiring a new staff member at the average UK salary of £27,600, the true cost to you, on average, for the first year of that employment is around £62,890.*

As a small business, then, you should consider the following when taking on a new team member.

Recruitment

Recruiters and recruitment firms are typically paid on commission and will often bill a fee equivalent to 20%–30% of the employee’s starting salary. The estimated cost to hire somebody on the UK average salary using a recruitment consultant is £3,000.

Salary

The largest cost associated with any new hire. According to UK Government figures, the average UK salary is £30,800.

National Insurance

By law, you must pay National Insurance (NI) contributions for all your full-time employees. Typically, this is 13.8% of an employee’s total pay (including any overtime and bonuses). The average cost in the UK of paying employers’ NI contributions is £4,250.*

Pension contributions

Auto-enrolment (that is, automatically enrolling employees into a workplace pension) means you, as an employer, must pay 3% of an employee’s salary towards their pension. The average yearly cost of pension contributions per employee is £924.

Training

Whether you deliver it in-house or have an outside company come in and do it, the average cost to a UK business of training new employees is £1,068 per employee.*

Office space and equipment

Providing new laptops, mobile phones and ergonomic chairs and desks, and making alterations to fit more people into the office, comes at an average cost of £6,000 per employee. *

Employee happiness

Beyond the office Christmas party, employers now go to great lengths to protect their employees’ health and wellbeing. This often includes benefits like social functions, gym membership, free tea and coffee, even breakfast. The average cost per employee in the UK is £1,000.*

Bonuses

To give your employees the appetite to strive and succeed, you might decide to offer a discretionary bonus. Government figures estimate the average bonus payment in the UK to be £1,848.*

Holiday cover

Employees are entitled to 28 days’ holiday per year. Hiring a contractor to cover an employee who takes leave typically costs an average of £250. The average cost of covering employees’ holidays in the UK is £7,000.*

Other essential costs

There are a range of additional costs that come with hiring a new employee. These range from insurance to sick pay, from company vehicles to extra licenses for software. The average additional cost per year to UK employers is £4,000.*

 

* Sourced from the office of national statistics ons.gov.uk, www.marketing-bersin.com, www.msci.com

 

Recruitment advertising +

There are essentially two routes that UK businesses follow to recruit new staff.

Insourcing

This means using your own network and reaching out to prospective employees on social media platforms like LinkedIn.

When you insource recruitment, you’re often leveraging the networks of your teams and peers. There is no better endorsement of your brand, or an advocate for your values, than your business’s own people.

Insourcing is relatively inexpensive – typically costing between £300 and £400 – but is sometimes time-consuming. Finding new team members can be easy when it is an “employer’s market” (i.e. when there are lots of suitable candidates searching for work), but can be extremely challenging in a “candidate’s market” (i.e. when suitable candidates are hard to find, or when you need to fill a highly specialist role).

Outsourcing

This means turning your recruitment process over to professionals and consultants, whether this is an international firm, a small local or specialised recruiter or an independent head-hunter.

There are also many platforms and services that allow specialists to place job ads on relevant sites on behalf of your company. Recruiters and recruitment firms are generally paid on commission and will often bill a fee equivalent to 20% of the employee’s starting salary.

If you’re testing the labour market for the first time, you should be prepared to negotiate on this figure. Typically, recruiters will filter CVs and applications, and even conduct first interviews to then provide you with a shortlist of suitable candidates – but this isn’t always the case.

Different ways to hire an employee +

Freelance vs. full-time employment

You might consider recruiting a freelancer either to limit the financial risk of taking on a permanent, full-time employee, or if you need someone to fulfil an essential function or complete a specific project with a definite deadline.

There are currently more than two million freelancers in the UK. Twenty two per cent of this freelance workforce operate in ‘business support’, completing functions like accountancy or management consultancy. The rest typically work in creative, sales and marketing, and digital and technology-based roles.

The benefits of hiring a freelancer

  • Cost-effective – The cost of hiring a full-time employee is high. Hiring a freelancer who works from home (which, in the UK, is nine out of 10 of them) allows you to make savings on everything from office equipment to training to National Insurance contributions.
  • Pay-as-you-go – The average rate for a freelancer in the UK is £37 per hour. While this is nearly double the average full-time wage, using a freelancer on an ad hoc basis can still be more cost-efficient than hiring a full-time member of staff.
  • Expertise – A freelancer should be an expert in their field and absolutely invested in having not only the latest skills and industry knowledge, but the most current tools for the job. As an employer, you can benefit from the diversity of their work and experience.

How to make the most of a freelancer

  • Book early – The best people are naturally in high demand. Keep an ongoing dialogue with your freelancer, and plan ahead to ensure they are available when you need them.
  • Set expectations – A freelancer is an expert in their subject area. For your work together to be successful, it’s vital that they understand your brand, values and the level of expectation of working with your business. Some businesses choose to sign non-disclosure agreements (NDAs) with freelancers to help keep their ideas and information secure.
  • Ensure delivery – From the management of your contract to the delivery and handover of a piece of work, make sure your freelancer meets all their contractual obligations. There’s nothing worse than a freelancer leaving halfway through a task.

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Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.