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The first question in a serious hiring decision probably shouldn’t be, “Who should we hire?”
It should be, “What work actually needs doing, and is a permanent employee the right way to get it done?”
That sounds obvious. But when the business is stretched and something isn’t getting done, hiring feels like the natural answer. We feel the pressure, decide we need another person, and start recruiting.
The problem is that the cost of hiring an employee starts climbing long before payroll does.
And sometimes we spend eight weeks recruiting for a problem that could have been solved with a two-week design exercise.
Before We Hire Someone, What Problem Are We Actually Solving?
I’ve seen this pattern repeatedly.
Something inside the business starts breaking down. Maybe work is backing up. Maybe someone is overloaded. Maybe an important responsibility simply isn’t getting handled.
The instinct is to add a person.
But that skips the first decision.
We need to understand the work before we decide who should do it.
In my experience, roughly a third of the roles founders hire for could have been handled more cost-effectively another way. The actual answer might have been a better process, a technology implementation, an outsourced provider, or a fractional resource.
That doesn’t mean hiring is bad.
It means hiring is only one possible solution.
We tend to compare the salary of an employee against the obvious cost of an alternative. Once we understand the full cost of hiring an employee, that comparison starts looking very different.
The Cost of Hiring an Employee Is Bigger Than Salary
A lot of us mentally calculate a hire like this:
Salary plus whatever it costs to recruit them.
That’s nowhere close to the whole number.
Take a $60,000 role.
If we use a recruitment agency charging 20% of first-year salary, we’ve spent $12,000 before that employee walks through the door.
Agency fees commonly run 15% to 25% of first-year salary. Executive search can run 25% to 35%. Then we can add job advertising, assessment tools, and all of the time spent interviewing candidates.
And we still haven’t onboarded anyone yet.
Once they start, management has to train them. Someone has to answer questions, explain how things work, and bring them into the business.
Meanwhile, the employee isn’t producing at full capacity.
Research consistently shows that a new hire in a professional role may take three to six months to reach full productivity. If our $60,000 employee spends three months producing at roughly half capacity, that’s another $7,500 of output we didn’t receive.
That lost productivity belongs in the cost of hiring an employee too.
We paid for the capacity. We just didn’t have all of it yet.
Then There Is the Cost Nobody Wants to Think About
What if we get the hire wrong?
This is where the economics get uncomfortable.
When a hire fails, we don’t simply return to where we started.
We may face another recruitment process, another productivity gap, potential severance, and the disruption caused when someone leaves the organization.
Research from SHRM and similar organizations has estimated the total cost of a failed hire at somewhere between one and three times annual salary.
On a $60,000 employee, that’s $60,000 to $180,000.
Even if we assumed only a 20% chance of the hire failing, we still have to account for that risk when deciding whether a permanent employee is the best answer.
Most hiring decisions are made as though the downside is limited to salary.
It isn’t.
Why the Cost of Hiring an Employee Changes the Decision
Once we combine recruiting costs, onboarding, lower productivity during the ramp period, and the risk of a failed hire, the numbers become much harder to ignore.
For a $60,000 role, the total expected hiring cost can easily reach $30,000 to $50,000 before we’ve even paid the first full year of salary.
Now the alternatives deserve a second look.
A technology project might initially feel expensive.
An outsourced provider might look costly compared with one month of payroll.
A fractional resource might carry a higher hourly or monthly rate than an employee.
But that isn’t the right comparison.
We have to compare the alternative against the real cost of hiring an employee, including everything that comes with putting another permanent person inside the business.
Sometimes hiring still wins.
Sometimes it doesn’t.
The mistake is deciding before we’ve run the comparison.
A Hire Should Be the Result of the Analysis
There is another problem with jumping straight into recruitment.
Once we’ve decided we “need a person,” we start defining the solution around a person.
We write the job description. Start interviewing. Compare candidates. Spend management time getting the role filled.
Momentum takes over.
And then, months later, we sometimes realize the new employee is solving the wrong problem.
The better sequence is almost embarrassingly simple.
First, understand the work.
Then decide how that work should be done.
Only then decide whether we need another employee.
That small change forces us to consider process, technology, outsourcing, fractional talent, and permanent hiring on the same playing field.
It also makes us confront the cost of hiring an employee before emotion and urgency push us into a decision.
Because the biggest hiring mistake isn’t always choosing the wrong person.
Sometimes it’s hiring a person for work that never required a permanent employee in the first place.
And once the salary, recruiting cost, management time, lost productivity, and failure risk are already inside the business, that becomes a very expensive way to discover we asked the wrong question.
Justin D Maxwell provides family office and investment bank services to the lower midmarket to founders who want 8 or 9 figure net worths. You can learn more here: www.justindmaxwell.com or take our free assessment here: https://fielding.global/articles/diagnostic.html