The True Cost of a New Employee in Australia
- Leonie Martin
- 4 days ago
- 6 min read
Hiring a new employee is always exciting; it signals growth, new opportunities, and the chance to strengthen your team. But before you bring someone on board, it’s important to understand the true cost of hiring and training a new employee.
Many Aussie business owners make the mistake of looking only at the salary figure when budgeting for staff. However, once you factor in costs for employees, compliance obligations, training, and the time it takes for someone to become fully productive, the real employee cost can be much higher than expected.
In this article, we’ll break down how much an employee costs, why these hidden expenses matter, and how you can manage them effectively.
Why Salary Isn’t the Full Story
When planning to hire, most employers focus on base pay. You might say, “I can afford to pay someone $70,000 a year.” But that figure tells only part of the story.
Every employee comes with a range of additional expenses that fall under what accountants call employee on costs. These include superannuation, leave entitlements, insurance, training, and more. If you overlook these, you risk underestimating the financial commitment involved.
Understanding all the costs upfront helps your business stay compliant, manage cash flow better, and plan for growth with confidence.
The Real Breakdown: What Goes Into the Cost of an Employee
Recruitment and Hiring Costs
The hiring process can be surprisingly expensive. From posting job ads to paying recruiter fees, screening applications, and running background checks, it all adds up. Even your time — or your manager’s time spent interviewing and onboarding is a cost to the business.
These are the first hidden costs in determining how much an employee costs your business.
Onboarding, Equipment, and Setup
Once you’ve made the hire, there’s more to pay for. New employees need a workstation, computer, software, uniforms, and access to systems. Then comes onboarding and training.
Training costs aren’t just what you pay for courses — they include the time your existing team spends mentoring or supervising. The cost of hiring and training a new employee can be significant, especially in technical roles or industries with strict compliance standards.
Payroll and Employee Taxes
Managing payroll for employees involves more than just transferring wages. You’ll need to handle tax withholdings, superannuation contributions, and other legal requirements.
The employee tax rate in Australia determines how much you must withhold and report to the ATO each pay cycle. You may also need to account for payroll tax (depending on your state and wage threshold), workers’ compensation, and other levies.
Outsourcing payroll to a professional service can help ensure accuracy and compliance, but it’s still an additional employee cost to consider.
Superannuation and Leave Entitlements
Superannuation is one of the biggest costs for employees. As of 2025, employers are required to contribute 11% of an employee’s ordinary time earnings into their super fund. This amount will continue to rise gradually under government schedules.
Then there are leave entitlements — annual leave, personal leave, long service leave, and sometimes paid public holidays or parental leave. Even though these benefits are essential, they add up quickly in terms of real cost.
Workers’ Compensation and Insurance
By law, Australian employers must hold workers’ compensation insurance to cover employees for work-related injuries or illnesses. The premium depends on your industry, payroll size, and risk classification.
You may also choose to take out additional insurance to protect your business or offer added benefits to staff. Again, these are all part of the employee's costs that go beyond salary.
Workplace Overheads
Each new hire increases your general overheads — more power usage, equipment wear, coffee, cleaning, and stationery. If you’re working from an office, adding extra staff could mean needing more space, desks, and chairs.
While these may seem small, they’re part of the total employee cost that many business owners forget to include.
Productivity and Performance Costs
Even the most skilled new hires need time to get up to speed. During the first few months, productivity is typically lower as the employee learns systems, processes, and company culture.
In this period, you’re paying full wages but getting reduced output. Mentoring time from senior staff also comes at a cost. So when calculating how much an employee costs, factor in the time it takes before they’re working at full capacity.
Example: Calculating the True Cost
Let’s look at an example. Suppose you hire an admin staff member on a $60,000 salary in Brisbane.
Here’s how the real costs might look:
Base salary: $60,000
Superannuation (11%): $6,600
Workers’ comp insurance: $1,500
Recruitment and advertising: $3,000
Training and onboarding: $2,500
Payroll processing and compliance: $2,000
General overheads (equipment, utilities, etc.): $2,500
Productivity ramp-up loss: $2,000
That brings the total to roughly $80,000 — about 33% higher than the base pay. And this doesn’t include turnover risk or pay increases down the line.
The Cost of Turnover and Replacement
When an employee leaves, you lose more than their output. You’ll have to spend again on recruitment, onboarding, and training. Studies in Australia estimate that the cost of hiring and training a new employee can range from 30% to 50% of their annual salary, depending on the role and industry.
High turnover rates also affect morale and productivity, leading to even greater indirect losses.
Training and Development: A Smart Investment
Although training adds to the cost, it’s essential for long-term success. The question isn’t just how much does it cost to hire and train a new employee, but how much value that employee will add once they’re trained properly.
Investing in structured development programs can improve retention, enhance skills, and increase productivity. That means better returns over time, making the initial employee cost worthwhile.
Payroll and Compliance Made Easy
Payroll management can quickly become complex, especially as your business grows. Handling payroll for employees involves regular tax calculations, super contributions, leave tracking, and reporting to the ATO.
Using a reliable payroll platform or outsourcing to an accounting firm can save time and reduce errors. Staying compliant with the correct employee tax rate and state payroll tax obligations also prevents costly penalties.
For small businesses, automated payroll systems are becoming an affordable and efficient way to simplify operations.
Managing Employee On Costs
So, how can you keep employees' costs under control without cutting corners?
Budget realistically – Always plan for at least 25–35% above base salary to cover on costs.
Outsource non-core work – Use freelancers or contractors for short-term projects.
Automate payroll and HR – Save admin time and reduce compliance risks.
Focus on retention – Reducing turnover saves big on recruitment and training.
Use government incentives – Check for wage subsidies, apprenticeship programs, and tax deductions.
Smart planning helps you manage costs while still building a strong, motivated team.
Why Understanding Employee Costs Matters
Knowing your true employee cost is crucial for pricing, budgeting, and profitability. Underestimating it can lead to cash flow issues, missed targets, and reduced margins.
When you fully understand the costs for employees, you can make better hiring decisions, set realistic pay structures, and forecast expenses accurately.
Businesses that take a strategic approach to staffing — rather than hiring reactively — are better equipped to grow sustainably.
The HelloLedger Advantage
At HelloLedger, we help small and medium-sized Australian businesses understand their true staffing costs. Our accounting and advisory experts assist with payroll setup, employee cost forecasting, compliance with the correct employee tax rate, and automation of payroll for employees.
By partnering with HelloLedger, you can focus on running your business while we handle the numbers. From calculating how much an employee costs to managing on costs for employees, we give you the clarity and tools needed for smarter financial management.
Conclusion
Hiring new staff is one of the biggest investments your business will make. While the salary might seem like the main figure, the cost of hiring and training a new employee goes far beyond that.
From recruitment and onboarding to superannuation, insurance, and payroll compliance, the true employee cost can easily exceed the base wage by 30–50%. Factoring in all these elements helps you make informed decisions, maintain profitability, and avoid financial surprises.
With support from experts like HelloLedger, you can manage your employee on costs, simplify payroll, and build a more sustainable business. When you understand how much it really costs to hire and train a new employee, you gain the confidence to grow your team strategically — and successfully.
