The true cost of hiring in Australia: How to calculate what employees really cost

• The full cost of hiring a new employee in Australia
• The hidden costs that drive up labour expenses
• 5 steps to accurately calculate true employment costs
• A free tool to help you estimate employee costs

The true cost of hiring in Australia goes far beyond the base salary. The wage is the visible, agreed-upon number, so it gets budgeted, while the rest is a given cost that is not accounted for. 

According to the Australian Bureau of Statistics, Australian government employee expenses increased by $22.1 billion in 2024–25, including wages and salaries, superannuation, workers' compensation, and other employee-related costs. 

For budgeting, pricing, and hiring decisions, consider all on-costs and supplementary expenses that affect the total employment cost.

Key components include:

• Base salary plus penalties, overtime, and role-specific allowances
• Employer taxes and statutory costs: Payroll tax, superannuation (12%), workers’ compensation
• Employee benefits: Additional leave, bonuses, incentives, extra retirement contributions or packaging
• Recruitment and onboarding costs: Advertising, agency fees, internal hiring time, training, certifications
• Overhead and equipment: Per-employee share of workspace, IT devices and software, setup, IT support
• Administrative and HR support, insurance, and other fixed costs that scale with headcount

Knowing the real cost of an employee helps businesses make more informed financial decisions and avoid costly surprises. It affects four areas in particular:

• Budget planning and forecasting: Factoring in on-costs beyond salary leads to more accurate budgets and fewer unexpected labour expenses.
• Pricing products and services correctly: Full visibility of labour costs ensures pricing reflects true delivery costs and protects margins.
• Hiring decisions and ROI: Understanding total employment cost supports a clearer assessment of affordability and return on investment for new roles.
• Avoiding cash flow issues: Planning for ongoing costs such as superannuation, payroll tax, workers’ compensation, and leave helps improve cash flow visibility and reduce financial pressure.

1. Base salary or wages

The amount of pay agreed in the employment contract. This is the first amount of the cost of an employee, but this does not reflect the full cost of the role.

• The base rate: Set by the relevant Modern Award, enterprise agreement, or the national minimum wage for award-free roles. The standard pay for ordinary hours based on the Fairwork Award Rate. .
• Penalty rates: The higher rates of pay for weekends, public holidays, late nights, or other unsociable hours, common in industries like retail, hospitality, and healthcare.
• Overtime and allowances: To cover extra hours worked beyond the standard week, plus role-specific allowances such as travel, tools, or first aid.

2. Employer taxes and statutory costs

As required under Australian law, certain costs sit on top of wages but are often excluded from salary budgets but are includes in operational costs.

• Payroll tax: A state-based tax that applies once total wages cross the state threshold, which ranges from $1 million to $2.5 million.
• Superannuation: Employers must pay 12% of ordinary time earnings into the super fund of every eligible employee, on top of their wage (FY2025–26).
• Workers' compensation: Compulsory employer-funded insurance in every state and territory, averaging around 1.75% but higher in physical industries.

3. Employee benefits

While not all costs are mandatory, many organisations offer emloyee benefits that are above the base entitlements mainly to incentivise employees - this payment then adds to the overall employment cost:

• Paid leave: Annual, personal/carer’s, and parental leave under the National Employment Standards, accruing over time and is paid when taken. Some employers offer more than the basic leave allowance. 
• Bonuses and incentives: Performance-based or discretionary payments that vary by role and reward structure are offered to employees to incentivise work ethic and performance. 
• Additional retirement contributions and salary packaging: Some employers contribute more than the compulsory 12% Superannuation Guarantee as a benefit.

5. Onboarding and training

Once employees are hired, costs continue to gow as new employees transition into the role:

• Training and certification: Any courses, licences, or qualifications the role requires before or soon after starting.
• Manager and peer time: The hours existing staff spend supervising, guiding, and supporting the new starter.
• Productivity ramp-up: The gap between paying a full wage and the new hire reaching full output.

6. Equipment and tools

All employees need a setup before they work can work at capacity. These costs are mostly one-off,  easy to estimate.

• Devices and software: Laptops, phones, and software licences required for day-to-day work.
• Work setup: Office space or remote setup requirements depending on working arrangements.
• IT support: System access, onboarding, and ongoing technical support.

7. Overhead costs

Finally, beyond direct employment costs, employees also contribute to the shared cost of actually running the business, such as:

• Utilities, rent, and floor space: Each employee's share of the cost of keeping the workplace running.
• Administrative and HR support: The back-office functions that grow as headcount grows.
• Insurance and fixed costs: Business cover and other standing costs that scale with team size.

Five-step method to calculate true cost:

1. Start with base salary
2. Add employer taxes and statutory contributions (typical 14–20%)
3. Add benefits and allowances
4. Include recruitment and training (amortise over tenure)
5. Factor in overhead and equipment

Example (80,000 base salary):

• Base salary: $80,000
• Superannuation (12%): $9,600
• Workers’ compensation (about 1.75%): $1,400
• Payroll tax (NSW, 5.45%): $4,883
• Benefits and allowances: $4,000
• Equipment and tools: $3,000
• Recruitment and training (amortised): $2,000
• Overhead (per-employee share): $7,000
• Total true cost: approximately $111,883 (about 1.4x the base salary)

Tips to manage true cost:

• Improve hiring efficiency and clarity of roles
• Invest in retention to reduce replacement costs
• Use automation to cut payroll and leave-management time
• Regularly review overhead and trim unused space or licenses

There are three main ways to work out the cost of an employee:

• Spreadsheets: Doable for a one-off, but need constant updating and break with a single wrong formula.
• Online calculators: Use calculators like our Employee True Cost Calculator for a full breakdown in seconds, with super, leave, casual loading, and payroll tax applied automatically. No sign-up required. 
• Payroll and workforce management software: As a workforce grows across sites, awards, and employment types, a workforce management software like Definitiv Evo keeps labour cost visible in real time, with award interpretation and compliance built-in.

The salary is only ever the starting point. Once superannuation, leave, workers' compensation, payroll tax, recruitment, onboarding, equipment, and overhead add up, the true cost of an employee in Australia typically is likely to exceed the advertised wage. Knowing the real figure is what enables a business to budget, price, and hire with confidence.

See the full picture in seconds. Our free Employee True Cost Calculator breaks down super, leave, loading, and payroll tax for any salary and state instantly – quick, easy and no sign-up required.