The Real Cost of Hiring

To properly determine the cost of hiring, there are many factors that need to be taken into consideration. It is not simply the cost of a job posting, or the people resources dedicated to work through the interview and recruiting process. As you gather all of the data, based on the tasks to complete, the cost to a business for hiring is always high, and considerably greater than we think initially. Let’s break down all of the components that go into hiring for most companies.

The Open Role:

Why is there an opening? Has someone left the business? Is the business growing and needs to take on additional people to handle the increasing volume of tasks, or adding new products or services that require their own organization and workforce to lead and manage?

In either case, the cost begins, and the clock starts ticking on the overall timeline to hire. If the open role is a backfill for an employee who has vacated the position, several factors immediately influence the cost equation.

1. Continuity: How will the business provide continuity when an existing employee leaves?
   1. The most common response is to have someone, or several people, take over those tasks until a new person is hired? While it may seem like a ‘cost savings’, it is not. Each person covering the open spot likely has to sacrifice some of their regular work to complete those tasks day to day. Invariably, there are sacrifices a business makes when this happens. There is usually a decrease in productivity in multiple areas of the business. This causes delays in delivery, and even loss of customers feeling they are getting less quantity or quality than they had previously. Clients will only accept this for a very short period of time.
2. Growth: Due to growth, what every business works toward, new people are needed to lead the new area of the business to success. Did the business plan for this growth in advance or wait too long to bring on the right people to lead the way?
   1. There are few critical junctures in the life of a business more important than a new product launch, and why the preparation for a seamless implementation is often the difference between its success or its failure. While companies will have laser-focus on the product, its design, quality analysis and beta testing, it is the planning for, and creation of, the right team to lead not only through implementation, but the leadership and governance of the new product or service that needs to share equally the priority stage.

Talent Acquisition

Whatever the reason may be, there is an opening that needs to be filled, and with a variety of methods to choose from in how to go about hiring, most companies will opt for multiple ways to approach it, each require time, cost, and effort from the business.

• Job Postings:
  • Job Boards: Some job sites offer free posting, usually for a specific period of time, and most just for your first posting. If you’re a company that has multiple openings to fill, or have used your freebie already, the cost on the most popular job sites will run into the hundreds of dollars for a single job listing, usually for thirty days. Calculate the expenses associated with posting job openings on various job boards or websites. Include fees for premium job listings if applicable.
  • Advertising: Consider any costs related to promoting job openings through online advertising, such as Google Ads or social media ads. Most sites offer ‘extras’ like priority placement, or more alerts to prospective candidates, each of which adds to the cost of your job posting.
  • Recruitment Agencies: If you use recruitment agencies, include their fees and commissions, which can run 10% to as much as 30% or more of the first salary once hiring is complete. Some also offer a flat rate, typically in the thousands of dollars for bringing a company that final hire.
•  Time-to-Hire:
  • Clock is Ticking: Calculate the average time it takes to fill a position from the moment it’s posted until the candidate is hired. The lost, or missing productivity the company looks to fill c Estimate the cost of lost productivity during the vacancy period. This can be calculated based on the salaries of employees involved in the hiring process and the revenue or output they could have generated if not engaged in hiring activities. Employing temporary staff, or leveraging overtime to cover the work from the job vacancy comes with a cost as well based on the projected salary for the role.
• Cost of Manpower:
  • Recruiters: Salaries, and all costs associated with the overall compensation of the HR or Talent Acquisition teams is part of that cost equation.
  • Interviewers: Most companies rely on their Talent/HR teams to identify ‘potential fit’, not to make the final hire. Thus, the cost associated with interviewers, hiring managers, and sometimes other leaders called upon to support what can be a ‘hiring cycle’, where a company has multiple roles to either build out a team, or due to several employees leaving over a short time period. Including their salaries and any expenses related to supporting the interview process can be much more than a small piece of the cost-puzzle.
  • Onboarding: There is extensive cost to bring in a new employee, introduce them to team members, scope out and train the full slate of responsibilities and tasks the new employee is expected to complete. Most onboarding plans will run for several months with an expectation that within two to four months time, the new hire will be proficient in the new role. Thus, the cost analysis is greater to begin and reduced the closer the employee gets to fully functional and proficient.
• Company Resources:
  • Technology: In recent years, companies have begun to employ new software and tools to manage their employee tools. Most have large one-time costs or monthly, subscription-type, costs that can be prohibitive.
  • Training: Training can be a large portion of cost. While usually part of the onboarding process, there are trainer salaries, leaders or peers the new employee may shadow, as well higher rates of coaching and check-in that companies may expect without sacrificing their existing responsibilities. Those that allow for shadowing and remove an appropriate amount of work to be done while in this supporting capacity should calculate these costs within the expense of Training and Onboarding.
  • Facilities: For higher volume hiring, a full ‘class’ or ‘hiring cycle’, often for front-line employees, companies may take these hiring events off-site. Using space at hotels and other venues come with considerable costs as part of the hiring process. On-site, allocation of specific space, training areas, coaching rooms and other offices have a cost associated, and should be accounted for as well as part of the overall cost of hiring.
• Turnover Costs:
  • For all of the time and effort spent on the hiring process, there is still attrition that happens, and it is often early in the employee’s tenure. The stronger the training and onboarding, the greater likelihood of employee continuity. Less focus and effort put into hiring, approaching it as simply posting a job and hiring a person, only to have them jump in like an existing employee is usually a mistake. This lack of dedication to a new hire is a lack of care for the company or organization, and why some companies see attrition rates that can approach well over 50% on average within the first year. Those costs can represent the highest piece of the hiring process overall.

Summary – The Cost per Hire Calculation

To get an overall cost per hire, add up all the costs mentioned above for a specific hiring period and divide it by the number of hires during that period. It is easy to see how critical it is to account for, and invest in each aspect of quality hiring from job postings to accurate job descriptions to organizational support, as well as solid training and onboarding.

Considering that newer, or smaller companies, only have so much budget to make available, there are ways to save costs. Companies are employing popular social media platforms to get the word out at little to no cost. Using free job listings on job sites can often yield good results. Having a great team who can ‘Rally’, and pick up any lost productivity from an open role without losing productivity of their own, can make a huge difference. Analyzing the data to identify trends and areas where cost savings can be made can help a company create the right strategy that allows for both quality hiring and does not overwhelm the budget.

Yes, the cost of hiring overall can be higher than first thought, but is always worth it for a business with a long-term vision to be a top player in their industry. It is easy to see how much more costly poor hiring is on a business. It is critical to have a comprehensive plan, and the appropriate budget, to ‘Get it Right’. Those that do, are the companies that thrive.