You have hired a full-time senior developer. Their goal is to speed up the development of your next big project and shorten time-to-market while maintaining your usual quality standards. Their salary is high, but they will bring a lot of value. Hiring them directly was the best solution... or was it?
Direct hiring comes with expenses that are not directly reflected in the annual salary but do affect the Total Cost of Ownership (TCO) of the incoming talent in your organization, preventing you from further optimizing your budget. Let’s break them down one by one.
What Is the Total Cost of Ownership?
The Total Cost of Ownership (TCO) is a metric used by technology leaders to measure the total costs associated with an asset throughout its entire lifecycle. Its purpose is to reveal all expenses beyond the purchase price or, in the case of human talent, the base salary.
TCO analyzes different components to generate the most realistic figure possible. Generally, some of them include:
Purchase price.
Setup and installation.
Training.
Legal and licensing fees.
Hosting.
System support.
Hardware and software maintenance.
Adding up each item’s value helps you better understand how much of your budget goes to each asset and gives you an idea of what it would cost to acquire a new one. More importantly, it provides you with data to evaluate alternatives and find the best fit for your needs.
Hidden Costs of Hiring a Senior Developer
There’s no doubt that the base salary is the most visible figure when hiring a senior developer or any other professional. However, the Total Cost of Ownership highlights additional expenses that often go unnoticed and significantly increase your talent investment.
Let’s break down some of these costs with fictional numbers to help you understand their impact and make better-informed decisions.
Recruitment Costs
Finding, evaluating, and hiring a senior developer involves recruitment expenses that are often not included in the initial budget. These costs cover aspects such as:
Software licenses for technical tests.
Job advertisements.
Background checks.
In addition, the time spent evaluating candidates and the potential loss of productivity until the vacancy is filled can also be considered a hidden recruitment cost.
A report by Smart Recruiters states that 57% of companies allocate 40% of their annual HR budget to acquiring talent, and 20% of organizations spend up to 60%. In other words, direct recruitment is expensive.
For a senior developer with an annual salary of $100,000, recruitment costs could represent approximately 15% of that salary, meaning an additional $15,000 in the first year.
Labor and Social Taxes
These are legal obligations that ensure compliance with social security and labor regulations. Unlike recruitment costs, these are recurring expenses and have a significant impact on the annual budget allocated to tech talent.
This category includes:
Social security contributions.
Payroll taxes.
Health plan contributions.
Retirement plans.
Generally, this category can increase by about 20% over the base salary. For an annual salary of $100,000, the extra tax expense can be around $20,000 per year.
Training and Development
As a tech company, you likely offer training opportunities for your senior developer. You want to keep them up to date with emerging tools, platforms, and methodologies. This is another investment included in the TCO.
As you might imagine, internal training is not cheap. According to a report by Learn Experts, companies in the United States spent about $98 billion in 2024 on training and developing their employees.
These costs include:
Workshops.
Mentorships.
E-learning platform subscriptions.
Seminars.
Certifications.
Along with boosting the professional growth of the senior developer, investing in training and development contributes to retention and satisfaction, reducing absenteeism and turnover risks.
It is estimated that these costs can account for about 5% of the annual salary, adding another $5,000.
Operational Costs
Your senior developer does not work in the air. On the contrary, this is one of the roles that require the most tools and technologies to perform properly and share their work within the organization. That’s what operational costs in TCO are about.
Although less obvious, their impact should not be overlooked. A reasonable estimate could be around 10% of the annual salary. In our example, that would be $10,000. This category includes expenses such as:
Software licenses.
Hardware.
Physical office space.
Administrative services.
Retention Costs
Today, the shortage of experienced professionals is a reality affecting companies like yours. If you have developers with a long track record, the smartest move is not to let them go.
Retention efforts increase over the years as it becomes harder to find someone with the right skills and experience to take over a project. Expenses in this category include:
Professional development programs.
Internal events.
Psychological support.
Inclusion policies.
All of this has one single goal: to build a work environment that motivates employees within your organization, preventing them from even considering leaving for another professional path.
Investment in retention is strategic, as the departure and replacement of a senior developer imply much higher costs due to knowledge loss and adaptation time.
As with training costs, the annual investment in talent retention can amount to around 5% of their annual salary.
