Holiday hiring season can make an extra set of hands feel essential.
Orders increase. Customer traffic picks up. Your existing team starts taking on more hours. Holiday promotions create additional work. Before long, hiring another employee can seem like the obvious answer.
But what does that employee actually cost your business?
The hourly wage is only one piece of the calculation. Payroll taxes, training, overtime, workers’ compensation, benefits, scheduling, and the time required to manage another person can all affect the cost of hiring an employee.
Before you add seasonal help, run the numbers. You may discover that hiring makes perfect financial sense. You may also find that adjusting schedules, improving a workflow, or changing how work is distributed gives you the capacity you need.
Here is what to calculate.
Start With the Employee’s Actual Wages
Let’s say you’re considering hiring a seasonal employee for $20 per hour for 25 hours per week.
Their base wages would be:
$20 × 25 hours = $500 per week
Over an eight-week holiday period, that’s:
$500 × 8 weeks = $4,000
That gives you a starting point, but $4,000 is not the total cost of hiring that employee.
Employers have additional costs tied directly and indirectly to payroll.
Add Employer Payroll Costs
Depending on your business, location, and employee classification, you may be responsible for additional payroll-related expenses.
These can include:
- Employer payroll taxes
- Workers’ compensation insurance
- State unemployment taxes
- Federal unemployment taxes
- Benefits, if applicable
- Payroll processing costs
Your exact costs will depend on your circumstances, so this is an area where accurate bookkeeping and payroll records are important.
Instead of asking, “Can I afford $20 an hour?” calculate what that employee is expected to cost the business in total.
That number gives you a much better starting point for the hiring decision.
Don’t Forget the Cost of Training
Seasonal employees rarely walk in on their first day and immediately operate at full productivity.
Someone has to train them.
That may require a manager, owner, or experienced employee to spend time away from their normal responsibilities.
Consider:
- How many hours of training will they need?
- Who will train them?
- What does the trainer earn?
- Will productivity temporarily decrease during training?
- Are there paid onboarding or orientation hours?
- Will they need certifications or specialized instruction?
For a long-term employee, those initial costs are spread over months or years of work. With seasonal hiring, you may only have that person for several weeks.
That makes training costs particularly important when evaluating a short-term hire.
Calculate the Tools and Resources They Need
Will your new employee need anything to do their job?
Depending on the business, that could include:
- Uniforms
- Equipment
- Software access
- POS access
- Technology
- Supplies
- Employee meals
- Mileage reimbursement
- Additional insurance coverage
Individually, these expenses may seem small. Together, they change the total cost of hiring an employee.
Make a list before you hire so you have a realistic estimate.
Look at Your Current Labor Percentage
Before adding another employee, understand what you’re currently spending on labor relative to your revenue.
Your labor percentage gives you useful context for the decision.
A business experiencing a significant seasonal increase in revenue may be able to support additional labor comfortably. Another business may already have labor costs that are putting pressure on profitability.
Look at your own historical numbers.
Review:
- Labor costs from last year’s holiday season
- Revenue during the same period
- Overtime
- Staffing levels
- Sales by week
- Profitability during your busiest weeks
Historical data can be especially useful when your business follows predictable seasonal patterns.
How Much Additional Revenue Does the Hire Need to Support?
This is where holiday hiring math becomes much more useful.
Instead of stopping at “This employee will cost approximately $X,” ask what the business needs to gain from that investment.
Will another employee allow you to:
- Serve more customers?
- Accept additional appointments?
- Fulfill more orders?
- Extend profitable hours?
- Reduce costly overtime?
- Improve turnaround time?
- Prevent lost sales?
- Give skilled employees more time for higher-value work?
The answer will look different for every business.
A new employee does not necessarily need to generate revenue directly. Their work may create capacity elsewhere in the company. The important part is understanding the financial reason behind the hire.
Watch Overtime Before Adding More Hours
During the holiday rush, existing employees may start accumulating overtime.
That makes the comparison more interesting.
In some situations, hiring seasonal help may cost less than paying substantial overtime for several weeks. In others, the cost and time required to recruit and train someone may outweigh the savings.
Run both scenarios.
Scenario A: What will your existing team cost if current employees work additional or overtime hours?
Scenario B: What will a seasonal employee cost after wages, payroll expenses, training, and other hiring costs?
Then consider the operational impact of each option.
The cheapest choice on paper may not always be the best choice for your team or your customers, but knowing the numbers gives you something concrete to evaluate.
Use Profit First to Test the Decision
If you use Profit First, your allocation system can help you evaluate whether the business has room for additional payroll.
Pay attention to your Operating Expense account and current allocation percentages.
Ask:
- Can OPEX support this additional cost?
- Will payroll put consistent pressure on the account?
- Am I relying on money allocated for taxes or profit to cover labor?
- Does projected holiday revenue support the additional expense?
- What happens when holiday volume returns to normal?
That final question is especially important if there is a possibility that a seasonal employee could become permanent.
A strong November or December does not tell you whether the same payroll expense will be sustainable in February.
Look Beyond Revenue When Making the Decision
A busy season can create urgency around hiring, but more revenue alone does not automatically make another employee affordable.
Look at the complete financial picture.
Before making an offer, review:
- Projected seasonal revenue
- Gross profit
- Current labor costs
- Expected overtime
- Total estimated cost of the new employee
- Training costs
- Operating expenses
- Cash flow
- Profit First allocations
- Expected workload after the season ends
Then ask whether the hire helps the business operate more profitably and effectively during the season.
Know the Cost Before You Hire
Holiday hiring can be a smart investment. The right person can expand capacity, relieve pressure on your existing team, improve customer service, and help your business take advantage of seasonal demand.
The decision gets much easier when you know what you’re actually paying for.
Calculate the cost of hiring an employee beyond their hourly wage. Compare that cost with overtime and other alternatives. Look at what happened during previous holiday seasons. Review your current cash flow and Profit First allocations.
Then make the decision based on what your business can support.
The goal isn’t simply to survive a busy holiday season. It’s to make sure the increased activity contributes to a financially healthy business when the rush is over.
Want Help Running the Numbers?
If you’re making a hiring, staffing, or other major financial decision and want another set of eyes on your numbers, book a Deep Dive Call with Spark.
We’ll dig into what’s happening in your business and help you understand the financial picture behind your next move.
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