Before you hire: can your business afford another employee?

You are turning work away or doing admin late at night. Another employee may be the right move. Before making the offer, test what the role costs, what it changes and how the business will fund the period before the benefit arrives.

A sound hiring model does not assume every employee directly creates sales. A role might increase delivery capacity, reduce errors, improve service or free the owner’s time. Define the purpose first so the financial assessment measures the right result.

Start with the employment arrangement

Confirm the role, hours, applicable award or agreement and employment conditions. The Fair Work hiring guidance and government hiring guide provide starting points. A budget is not a substitute for identifying the correct entitlements.

Include salary or wages, super, insurance, equipment, software, recruitment and training. Add payroll tax, allowances, leave loading, penalties or other costs where they apply. Use the business’s circumstances rather than assuming one standard on-cost percentage covers everything.

Build a cost the business can recognise

This fictional example assumes a $90,000 salary excluding super, all of which attracts the 12% super calculation. The other allowances are assumptions, not market benchmarks. Recoverable GST is excluded where relevant.

Illustrative first-year cost of a new role

Item	Annual amount
Salary excluding super	$90,000
Super at 12%	$10,800
Assumed insurance, software, training and operating costs	$7,200
Recurring annual budget	$108,000
One-off recruitment and setup	$6,000
First-year budget	$114,000

Replace the assumed costs with quotes and relevant obligations. The ATO Payday Super framework also affects when employer super needs funding. Reflect actual pay-cycle dates in the cash forecast rather than leaving super until a later quarterly payment.

Do not count ordinary paid leave twice

An annual salary generally continues during paid annual leave. Adding the full value of that ordinary leave again to the annual salary can double count wage cost. Leave still reduces the time available for productive work.

Model realistic available hours and separately allow for required cover or leave loading. Check the annual leave entitlement and payment rules that apply. Also allow for induction and supervision: the new person’s arrival may temporarily reduce a manager’s delivery capacity.

Work out the contribution required, not just extra revenue

The recurring budget above is $9,000 a month. Suppose additional sales have a 60% contribution margin after other variable costs but before this new employee’s cost. The role needs $15,000 additional monthly sales to cover $9,000 recurring cost.

Covering the full $114,000 first-year budget at the same margin requires $190,000 extra annual sales. This assumes no other fixed costs increase. If the new salary is already included in the margin, subtracting it again would double count it.

For a support role, describe the route to value. If it frees ten hours of owner time a week, how will those hours be used? Better personal capacity can be a valid objective, but it is different from a funded sales assumption.

Fund the ramp-up before it begins

Assume the new role produces contribution of $3,000 in month one, $6,000 in month two and $9,000 in month three, after other variable costs. Against the $9,000 monthly recurring cost, the combined operating shortfall is $9,000.

Add the $6,000 setup cost and the initial funding requirement is $15,000 before customer collection delays, GST or other business cash movements. The role reaches monthly break-even in month three but has not recovered the initial shortfall.

Put those amounts into the whole-business forecast. Existing wages, rent, tax and loan payments continue. A slower customer payment or delayed start can increase the cash needed even when the long-term role remains worthwhile.

Set the decision gates before sending the offer

Agree the conditions that support the hire: a credible demand case, a realistic delivery plan and enough funding for a slower start. Where those conditions are not yet met, consider whether timing, scope or another lawful staffing arrangement better fits the requirement.

Set review measures that match the role, such as capacity released, work delivered, response times or contribution. Make sure the employee receives the training and resources assumed in the plan.

Our financial modelling support can test the numbers behind a proposed hire. The aim is to make an employment commitment the business can sustain and give the new team member a role that is properly supported.