When Can Your Business Afford Its Next Employee?
Written by Daniel Dubois
For many business owners, hiring a new employee feels like a natural next step. Revenue is growing, the team is busy, and customers are demanding more attention. However, one of the most common mistakes business owners make is assessing affordability based solely on salary. The reality is that an employee costs significantly more than their annual wage, and every hiring decision represents a substantial investment of capital and management time.
Before recruiting your next team member, it is worth asking a simple question:
Will this employee create enough value to justify their total cost to the business?
Salary Is Only the Starting Point
When a business hires someone on an $80,000 salary, the total cost is rarely $80,000.
Additional costs commonly include:
Superannuation
Payroll Tax
WorkCover insurance
Recruitment costs
Training and onboarding
Professional development
Software licences
Computer equipment
Mobile phones
Office space and operating overheads
Management and supervision time
Many business owners underestimate these additional costs because they are spread across different expenses within the business.
Understanding Employment On-Costs
Some employment costs increase directly with every employee you hire.
As at 2026:
Superannuation Guarantee is 12% of salary
Victorian Payroll Tax is generally 4.85% of taxable wages once applicable thresholds are exceeded
Victorian WorkCover premiums vary by industry and claims experience, but many professional services businesses experience effective rates of approximately 1% to 3% of wages
Consider an employee with an annual salary of $80,000:
Salary: $80,000
Superannuation (12%): $9,600
Payroll Tax (4.85%): $3,880
WorkCover (assume 2%): $1,600
Total direct employment cost: approximately $95,080 before any equipment, software, training or overhead costs are considered.
Once these additional business expenses are included, the annual cost can easily exceed $100,000.
Don't Forget Productive Capacity
Many businesses assume an employee provides 52 weeks of productive work each year.
In reality, employees will spend time on:
Annual leave
Personal leave
Public holidays
Professional development
Team meetings
Internal administration
Performance reviews
System training
Importantly, these items do not typically increase salary costs because they are already included within the employment package.
However, they do reduce the number of productive hours available to generate revenue, service clients, or complete project work.
This means the value an employee must create during their available working time is often much higher than employers initially expect.
The Hidden Cost of Training
New employees rarely become fully productive from their first day.
Most require:
Recruitment and interview time
Induction and onboarding
System training
Technical training
Ongoing supervision
Regular support from senior staff
For professional services businesses in particular, the time invested by managers and senior team members can be substantial.
While these costs rarely appear on a payroll report, they are very real economic costs that should be considered when assessing whether a new hire is justified.
Opportunity Cost Matters
Every hiring decision creates an opportunity cost.
The same $100,000 that funds a new employee could alternatively be invested in:
Marketing and lead generation
Equipment or technology
Process improvements
Debt reduction
Building working capital reserves
Similarly, investing in marketing may generate enough additional revenue to justify multiple future hires rather than recruiting prematurely.
The question is not whether a new employee can help the business. The question is whether employing that person represents the highest and best use of available capital.
Do You Have a Capacity Problem or a Process Problem?
Businesses often assume they need another employee because the team feels busy.
However, the underlying issue may be:
Inefficient processes
Poor delegation
Lack of automation
Inadequate systems
Unclear responsibilities
Low utilisation of existing staff
Adding people to an inefficient process often increases costs without solving the underlying bottleneck.
Before hiring, it is worth reviewing whether existing workflows can be improved first.
Questions to Ask Before Hiring
Before committing to a new employee, consider:
What specific problem will this person solve?
How will their success be measured?
What is their total cost including on-costs and overheads?
How much additional revenue or profit will they generate?
How long will it take for them to become fully productive?
What should you be doing to make your business ready for the next employee?
Are there alternative investments that would deliver a better return?
Can the business comfortably fund the position during quieter periods?
If these questions cannot be answered with confidence, it may be worth delaying recruitment until the business case becomes clearer.
A Simple Rule of Thumb
Business owners should assess employees as investments rather than expenses.
A well-performing employee in the right role will create value greater than their total employment cost. For revenue-generating roles, this might mean generating several times their salary in additional revenue or gross profit. The old 3 times rule is a common assessment in service industries.
For support and administration roles, the focus should be on understanding the constraints in your business and ensuring someone new provides measurable improvements in efficiency, client service, compliance, productivity or business capacity.
If the expected benefit is unclear, the investment may not yet be justified.
Conclusion
Hiring the right employee can be one of the best investments a growing business makes. The right person can increase capacity, improve customer service, strengthen culture, and help unlock future growth.
However, salary is only one component of the decision. Superannuation, Payroll Tax, WorkCover, training, software, equipment, overheads, and management time all contribute to the true cost of employment. Equally important is recognising the opportunity cost of directing capital towards additional staff instead of other growth initiatives.
The most successful businesses do not hire simply because they are busy. They hire because there is a clear business need, a strong return on investment, and confidence that the additional capacity will create value well in excess of the total cost incurred.
At Salt Financial Group, we help business owners evaluate growth decisions, understand cash flow impacts, and assess whether additional staff, technology investment, or process improvements are likely to deliver the strongest return for the business. A well-timed hire can accelerate growth, but only when the numbers support the decision.