You need help in your business and need to hire a new employee. So you think it’s as simple as putting out a job ad and hiring the most qualified applicant.
Well, for one – it takes a lot more to get the right candidate to fill a role. And two, it costs more than most employers expect.
In America, companies are spending roughly $4,129 per hire. And this process takes about 42 days to fill the vacant position. This may not be a huge bite out of your budget, depending on the size of your company.
Then in the UK, it’s found that employers pay around £5,000 when using a recruitment agency. And if the company uses LinkedIn and other social media or job sites spend about £200-£400.
On average, the cost sits around £3,000.
But what it may cost your organization may be a bit different. That’s exactly what we’re going to answer today – how much does it cost to hire an employee?
What’s Cost Per Hire?
Cost per hire is the average you spend on hiring a new employee. And it’s essential to know so you can better prepare your recruiting budget.
For instance, let’s say you’re looking to hire 50 new workers in 2019 and the cost per hire is $3,000. You’ll know right off the bat that it’ll cost you roughly $150,000.
Just keep an eye on your recruiting expenses over the years to see if there are any significant changes. Check out this article for tips to reduce your cost per hire.
The Formula for Tracking Your Cost Per Hire
Now, when it comes time to calculate your own cost per hire, there are several factors you must keep in mind. Here’s a quick look at the formula:
CPH = Internal Recruiting Costs + External Recruiting Costs / Total number of hires.
So if we take the example from the last section, it would look something like this:
$3,000 = $75,000 + $75,000 / 50 new hires.
The key now is figuring out the internal and external expenses for recruiting new employees. Let’s take a closer look.
Contracting a Recruitment Agency
If you don’t have an internal recruitment team to handle your hiring needs, then you may want to consider contracting to a recruitment agency. This can help you cut costs since you only pay for this expense when you have positions to fill.
This beats having to spend money on a full-time staff you don’t really need.
In fact, you’ll find most startups and small businesses going this route. One thing you can’t afford as a small business owner is wasting time on tasks that don’t generate an income.
Stats show the recruitment process can steal away 40% of your working hours.
So as you’re shopping around for recruiters, you’ll want to look for an agency with a performance-based model. This way, you’re only paying for results.
If they don’t successfully hire a new candidate, then they don’t get paid. You can expect to pay between 15% to 25% of the employee’s annual salary.
Now, if you’re a large company, it may be more cost-effective to go with an internal HR department.
Internal HR Department
Say you have an HR team already – then you obviously won’t need to hire a recruiting agency. It’s a good idea to have at least one HR manager. The cost for one can vary anywhere from $50K to $100K+.
In this position, the HR department will handle writing job ads, publishing them to job boards, screening applicants, interviewing candidates, and making them an offer.
Now, keep in mind your HR team handles a variety of other tasks outside of recruiting. So it’s a good idea to use this team only if their wages are less than what you’d spend on an HR agency.
Local Career Events
Job boards and social media networks are great venues for finding talent. However, it’s not the only means to do so. Career events are still popular and can help connect businesses with great talent.
You’ll find that about 57% of hires come from college grads – some coming from college career fairs. The cost for attending these events can range between $125 and $225.
But this doesn’t include the costs of travel, accommodations, marketing materials, etc. So if you’re attending multiple career fairs each year, then this will quickly add up.
Fees for Job Boards
While publishing listings on job boards is highly effective, it doesn’t come without a price tag. Now, depending on the job boards you use will determine how much you end up spending.
For instance, posting a job ad on Craigslist will cost you $45 per category. And you can expect to pay this same rate or higher on other sites.
You may find you’ll have a better outlook if you use a specialty job board, such as for digital marketers, writers, or finance professionals.
If you plan on using multiple job boards, then calculate the fees you’ll spend each month. If you end up hiring someone within that 42-day time frame we mentioned earlier, then you may be able to get away with only paying for a 30-day ad placement.
You can’t go around hiring employees you know nothing about. And while you can’t sit for weeks on end having deep conversations, there is another way to learn about – background checks.
There are different types of checks you can do, such as for credit, criminal, education, past employers, and so on. Now, the number of checks you do will add up, especially since some providers only offer one type of check.
Some checks run you $5 while others can cost as much as $80. If you can find a bundled deal then even better.
If you’re really looking to get a position filled quickly, then offering a sign-on bonus is the way to go. Besides the salary and perks, candidates are motivated by sign-on bonuses.
Anything to get money into their pocket sooner (especially for college grads who are strapped for cash). Take this into account for each position you’re hiring for so you can accurately calculate your cost per hire.
The Onboarding Process
Once you hire a new employee, it doesn’t end here. You have to get them ready to start working for your company. Without proper onboarding, you’ll only end up with an increased turnover rate.
All that money spent hiring an employee just to lose them to the wind. So you’ll need to put together an onboarding and training program that’s efficient.
Studies show it takes new employees roughly two to seven months to reach full productivity. This is where you get a return on your investment. In other words, the better you train them, the quicker they can hit the ground running.
As for the cost – it depends on how you onboard new employees. For instance, you’ll have to pay for someone to create your materials, such as guide books, training videos, and so on.
Then if you’re using managers to train, then you have to count the productivity lost for them to do so. Some of the other expenses you have to worry about include the cost for paper and ink and time spent looking for misfiled documents.
You can cut down on this expense by digitizing the process. For instance, you can forego the paperwork by having it scanned and emailed via a platform like eversign.
This will allow new hires to fill out paperwork on their own time without demanding time from your managers. Plus, they can sign the documents electronically and get started sooner.
Plus, this will reduce the chances of HR documents being lost. The management of key paperwork is as easy as signing in to your dashboard.
What’s the Cost of a Bad Hire?
Let’s face it – there’s a chance you’ll end up hiring the wrong person for the job. And when this happens, you have a price to pay.
This can accumulate over time, especially if they stay onboard for many months or years. The loss of productivity and money wasted on the wrong talent can be substantial.
Stats show a bad hire costs 41% of employers over $25K and 25% of employers spend over $50K.
It’s also important to note that the cost of replacing an employee costs more than filling a new position. One study shows it costs between 50% to 60% of the employee’s annual salary to find a direct replacement.
This is why onboarding and proper recruiting is essential to ensure you can reduce turnover rates (and costs).
Making the Most of Your Hiring Process
Now that you have a better idea of the expenses associated with hiring a new employee, it’s time to find ways to cut costs. If you find the expenses are too great, then you need to do careful research to find the best recruiters, job boards, and onboarding training process.
The quicker you can find the best talent, the cheaper it’ll be to recruit new employees.
Hopefully, this guide will help you determine your current cost per hire so you can make the most of it. Let us know in the comments how you’re able to keep your recruiting costs to a minimum!