Beyond Wages: The Hidden Costs of Hiring Employees and How to Save Using Nearshore staffing

March 31, 2025

In today’s competitive job market, understanding the true cost of hiring an employee goes far beyond their base salary.

When evaluating the total cost of hiring employees, it’s essential to consider not only wages but also the additional expenses that contribute to the overall financial commitment. Recent data from the SBA suggests that the fully loaded cost of an employee typically ranges from 1.25 to 1.4 times their base salary. For example, the fully loaded cost of an employee with a $100K salary is $125k-$140k annually.

Here’s a comprehensive breakdown of these costs:

1. Payroll Taxes & Mandatory Contributions

Employers in the United States are responsible for several mandatory taxes and contributions, including:

Social Security Tax: Employers pay 6.2% of each employee's wages.
Medicare Tax: An additional 1.45% of wages.
Federal Unemployment Tax (FUTA): Typically 0.6% on the first $7,000 of wages per employee.
State Unemployment Tax (SUTA): Rates vary by state but often range from 1% to 6%.
Workers’ Compensation Insurance: Costs vary based on industry and state regulations.

Collectively, these taxes and contributions can add approximately 10% to 15% to the base salary of each employee.

2. Employee Benefits

Beyond mandatory taxes, employers often provide additional benefits to attract and retain talent:

Health Insurance: Employers typically cover a significant portion of premiums, averaging $7,000 to $10,000 per employee annually. According to the Society of HR Management (SHRM), health insurance costs are projected to rise by 5.8% in 2025.
Retirement Plans: Many companies offer 401(k) matching contributions, commonly around 3% to 6% of an employee's salary.
Paid Time Off (PTO): Including vacation days, sick leave, and holidays.
Other Benefits: Such as dental and vision insurance, life insurance, and wellness programs.

These benefits can add an additional 20% to 30% to the total compensation package.

3. Recruitment & Onboarding Expenses

The process of hiring new employees incurs several costs:

Advertising Vacant Positions: Posting on job boards and other platforms.
Recruitment Agency Fees: If external recruiters are used, fees can range from 15% to 25% of the new hire's first-year salary.
Background Checks and Drug Testing: Ensuring candidate suitability and compliance.
Onboarding and Training Programs: Time and resources spent to integrate new hires effectively.

According to the Society for Human Resource Management (SHRM), the average cost per hire is approximately $4,700.

4. Overhead Costs

Maintaining an in-house workforce requires significant overhead expenditures:

Office Space: Leasing or owning physical office space, with costs varying by location.
Utilities: Electricity, water, internet, and other essential services.
Office Supplies and Equipment: Computers, desks, chairs, and other necessary tools.
Maintenance and Janitorial Services: Ensuring a clean and functional workspace.

These overhead costs can add thousands of dollars per employee annually.

5. Turnover and Replacement Costs

Employee turnover presents hidden costs that can impact a company’s bottom line:

According to SHRM, the total cost to hire a new employee can be 3-4 X the position’s salary.

Advantages of Nearshore Staffing with Remote Team Solutions

By partnering with Remote Team Solutions for nearshore staffing, companies can mitigate many of these expenses:

Reduced Salary Costs: The salary for top tier talent is approximately 60% less than hiring local than talent.
Elimination of W2 Employee Expenses: The additional 25%-40% incurred for W2 employees, is eliminated when utilizing RTS "Staff as a Serice" model.
Lower Overhead: Elimination of expenses related to office space, utilities, and equipment, as these are managed by RTS, your nearshore provider.
Streamlined Recruitment: The provider handles recruitment and onboarding, eliminating associated costs and time commitments.
Compliance and Risk Management: Nearshore partners manage local labor laws and regulations, minimizing legal risks.

Nearshore staffing can lead to cost savings of up to 70% compared to traditional hiring methods.

It’s clear that a holistic understanding of these costs is essential for sustainable business growth and effective workforce management. By recognizing and addressing these additional costs, businesses can make informed decisions about their staffing strategies.

Partnering with Remote Team Solutions not only reduces expenses and nearly eliminates turnover, but also provides access to a talented workforce aligned with your company’s needs.