You've approved a $90,000 salary for a new hire. You've budgeted $90,000.
By the end of the first year, you'll have spent closer to $130,000 — and that's before the role reaches full productivity.
The gap between salary and true employment cost is one of the most consistently underestimated figures in business planning. Here's what's in that gap.
The Statutory Costs (Non-Negotiable)
These are set by law. You pay them whether you know about them or not.
Superannuation — 11.5%
The current superannuation guarantee rate is 11.5% of ordinary time earnings, rising to 12% in July 2025. On a $90,000 salary: $10,350/yr.
This is payable on top of salary — it's not deducted from the employee's pay. Many small business owners confuse this and underbudget accordingly.
Payroll Tax
Payroll tax is a state-based tax on wages above a threshold. Rates and thresholds vary:
| State | Threshold | Rate |
|---|---|---|
| NSW | $1.2M | 5.45% |
| VIC | $700K | 4.85% |
| QLD | $1.3M | 4.75% |
| WA | $1M | 5.5% |
| SA | $1.5M | 4.95% |
If your total wages exceed your state's threshold, payroll tax applies to every dollar above it — including the new hire's salary.
Workers Compensation Insurance
Mandatory in all states. Rate varies by industry — office workers are typically 0.5–2% of wages. On $90,000: $450–$1,800/yr.
Leave Entitlements
Employees accrue leave that represents real cost:
- Annual leave: 4 weeks (roughly $6,900 for a $90k salary)
- Sick/personal leave: 10 days ($3,450)
- Long service leave: accrues from year 1, payable from year 7 or on departure
Leave entitlements aren't costs when taken — they're costs as they accrue. Budget for them accordingly.
The Recruitment Costs
Finding the right person is expensive. Most businesses either underestimate this or forget to include it in headcount cost models.
| Recruitment method | Typical cost |
|---|---|
| Recruitment agency (15–20% of first year salary) | $13,500–$18,000 |
| Job boards (Seek, LinkedIn) | $1,000–$3,000 |
| Internal recruiter time (if applicable) | $2,000–$5,000 |
| Interviews (hiring manager + panel time) | $1,500–$4,000 |
| Reference and background checks | $200–$500 |
Even without an agency, recruitment typically costs $5,000–$10,000 in staff time and advertising. With an agency, add $13,000–$18,000.
These are one-time costs — but they're real, and they belong in the first-year cost of employment.
If a hire doesn't work out and you need to rehire within 12–18 months, you pay these costs twice. The total cost of a failed hire — including lost productivity during vacancy, rehiring cost, and the time it takes a new person to reach full output — is typically 50–150% of the role's annual salary.
Equipment and Setup
Every new employee needs tools to work:
| Item | Typical cost |
|---|---|
| Laptop (MacBook Pro equivalent) | $2,500–$4,000 |
| Monitor, keyboard, peripherals | $500–$1,000 |
| Software licences (per seat) | $500–$2,000/yr |
| Phone (if applicable) | $800–$1,500 |
| Security and access provisioning (IT time) | $500–$1,500 |
For a typical office role: $4,000–$8,000 upfront plus $500–$2,000/yr in ongoing software costs.
Office Space
If your employee works in an office, they occupy space that costs money.
Australian CBD office space typically costs $800–$1,500/m² per year. A standard office allocation is 8–12m² per person. That's $6,400–$18,000/yr per employee — before fit-out, utilities, and cleaning.
Remote and hybrid arrangements reduce this cost but don't eliminate it entirely — you still need desk space on office days, and employees typically receive home office allowances.
Onboarding and Training
Getting a new employee to full productivity takes time — and that time has a cost.
| Phase | Duration | Cost |
|---|---|---|
| Formal onboarding | 1–2 weeks | $3,500–$7,000 (manager + HR time) |
| Role-specific training | 2–4 weeks | $2,000–$8,000 |
| Productivity ramp | 3–6 months | Lost output during ramp period |
The productivity ramp is the most significant and least discussed cost. A new employee operating at 50% productivity for 4 months on a $90,000 salary represents $15,000 in paid salary for half-capacity output.
Management and HR Overhead
Every employee requires management time. This isn't optional — it's part of effective employment.
- Direct manager time: typically 2–4 hours per week for a new employee
- HR administration: onboarding paperwork, payroll setup, leave management
- Performance reviews, 1:1s, goal setting
- Compliance training
For a senior manager at $150,000/yr: 2 hours/week = $7,500/yr in management overhead per direct report.
The Full First-Year Cost
| Cost Component | Amount |
|---|---|
| Base salary | $90,000 |
| Superannuation (11.5%) | $10,350 |
| Workers compensation | $1,200 |
| Recruitment (agency) | $15,000 |
| Equipment and setup | $6,000 |
| Software licences | $1,200 |
| Office space | $12,000 |
| Onboarding and training | $5,500 |
| Management overhead | $7,500 |
| Leave accrual (4wk annual) | $6,900 |
| Total First-Year Cost | $155,650 |
That's 1.73× the base salary — and it doesn't include payroll tax (if applicable) or the cost of a failed hire.
Use 1.4× salary as a quick multiplier for ongoing annual cost after the first year (excluding recruitment and setup). Use 1.7–1.9× for the true first-year cost including recruitment and onboarding.
How to Use This in Headcount Planning
When building a business case for a new hire:
- Calculate the true first-year cost using the 1.7–1.9× multiplier
- Model ongoing annual cost at 1.4× salary (plus annual salary increases of 3–5%)
- Include the productivity ramp — budget for 50% output for months 1–3, 75% for months 4–6
- Compare to the outsource/contractor alternative using real fully-loaded rates
TrueOutflow has a hiring and HR vertical that models this comparison — employee vs contractor vs outsource — with your actual figures.