All The Elements That Add To The Cost Of A New Hire

From the outside looking in, hiring might not seem like an expensive endeavor. Sure, it takes a little time to interview and train new employees, but the costs go much deeper than that and the importance of a strong human resources team is more important than ever with job hopping becoming today’s new normal. It’s time to take a good look at the true cost of hiring.

Hire US

Hire US

Recruiting Has Many Elements

Just finding the right person can be expensive and as the savvy business owner knows, time costs money. The high costs of recruiting include advertisement, which can cost up to $500 if you want to post to all the major job boards. But that is just the beginning.

The review process is next. Much of this can be automated with an applicant tracking system (ATS) but even automation has a cost. ATS systems are usually charged per user and recruiting done right requires more than one person. After discarding a few resumes, they still require review by a human being. And when there are still 300 resumes to review after the ATS discards half of the resumes, the cost of paying an internal recruiter becomes very real, and when these individuals are busy they may miss a gem potentially costing thousands in opportunity cost. Hiring managers only spend an average of six seconds looking at a resume.

After finding these new employees, reviewing their resumes and various other hiring tasks, comes conducting the interviews. This is a long arduous process. First comes pre-screening which is an effort to further narrow down the hiring funnel and bring only solid candidates into the office. Next, you have to prepare for the interviews with questions and schedule the interviews. Only then do you interview the candidates.  The best hiring managers know the importance of hiring the right candidate so many candidates are interviewed up to five times. And many of those interviews require multiple people and multiple department specific managers and you can’t overlook any of this because hiring the wrong fit only adds to cost, which we’ll discuss later. 

Once the person is chosen a lot of companies require a drug screening and background check. Even then, you don’t know an employee will stay with the company. Even minimum wage employees can cost companies up to $3,500 in direct and indirect costs in high turnover industries.

Meeting and Training Takes  Time

Meeting and Training Takes Time

Training Employees Is Time Consuming

Many people see recruitment as the hiring process but that is merely one step. Once you have the right person for the job, you need to provide training and resources so the new employee can do the work and start producing for the company. Training employees is often the most expensive investment in the employee. For large corporations hiring skilled workers the cost is significantly greater. According to a study by Deloitte, large corporations are starting to spend more and more on training as the skills gap widens. And it’s not just new employees that require training. Current employees often need continuing education and on-the-job training.

Are your employees in a hurry to leave at 5pm?

Are your employees in a hurry to leave at 5pm?

Salary, Benefits, and Culture

Hiring is one part, then there is paying the employee, an expensive endeavor if the candidate negotiates well. Then, there’s the benefits. Obvious benefits include health and life insurance, tuition reimbursement, and disability but those snacks and coffee in the break room are costly as well. Many estimates put the cost of benefits up to 1.4 times the salary of each employee.

Company culture is becoming increasingly important to hiring managers and as hard as they might try, and as sure as they might be that a candidate is a fit; one never knows. This might result in losing the employee or having to rearrange teams – both of which incur a cost.

Most employees won’t reach maximum proficiency for months. So, if you take into account all the cost incurred to find and onboard employees and assume that maximum proficiency means they are finally profitable for the company, they often aren’t a profitable hire until six months after the hire date. If you want to measure the overall effectiveness of a hiring strategy you have to add the cost of bad hires. This adds to turnover which pushes this the point where a new hire becomes profitable out even further.



from Jason Hanold – Talent Acquisition
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