Hiring a new employee is a crucial moment for any organization. It signifies growth, fresh perspectives and the promise of enhanced productivity. But, beneath the surface lies a complex web of costs that can significantly impact a company’s bottom line.
From recruitment expenses and training investments to indirect costs that often go unnoticed, the financial implications of bringing new talent on board can’t be underestimated.
We’re shedding light on both the direct and indirect expenses that organizations face during the recruitment process to help businesses uncover the real cost of hiring an employee.
By understanding the intricate costs associated with hiring, you’ll be able to make informed hiring decisions, implement cost-effective measures and boost your bottom line.
Direct Costs of Hiring an Employee
- Job advertising and recruitment costs: Costs associated with sourcing and attracting potential candidates, such as advertising job openings on job boards, career fairs, recruiting agencies or any other marketing efforts to reach potential candidates.
- Background checks and screenings: Some employers conduct background checks, drug screenings, or other pre-employment tests, which may incur additional costs.
- Employee documentation and legal compliance: There may be costs associated with verifying the employee’s eligibility to work, obtaining necessary work permits or visas, and complying with legal requirements.
- Onboarding and training: Expenses related to orienting and training new employees, including materials, resources, and any external training or professional development programs.
- Employee referral programs: It’s common for businesses to incentivize their workers to refer their friends to work for a company.
Indirect Costs of Hiring an Employee
- Productivity loss: It’s the most important yet overlooked cost—lost productivity from your existing team having to train new team members. During this adjustment period, there can be a temporary decrease in overall productivity for the team.
- Time: The time and effort spent by your HR department and hiring managers on activities such as reviewing resumes, conducting interviews, and evaluating candidates are indirect costs. And, hiring can take time away from your top employees too. This includes the time spent by existing employees who participate in the hiring process, such as interviewers and panel members.
- Increased administrative tasks: Hiring a new employee often involves administrative tasks such as setting up payroll, benefits enrollment, and updating personnel records. While these tasks may seem routine, they still require time and resources from HR personnel or administrative staff.
- Team morale: Introducing a new employee into an existing team can impact team dynamics and morale. It may require additional time and effort from team members, as well as supervisors to integrate the new employee into the team and establish effective working relationships.
What Is the Average Cost of Hiring a New Employee
Recruiting new employees is not cheap. According to new benchmarking data from the Society for Human Resource Management (SHRM), the average cost per hire was nearly $4,700, based on their Human Capital Benchmarking Report.
Of course, the average cost of hiring a new employee can vary significantly depending on a number of factors, such as the industry, position level, location, and company-specific factors.
It’s important to note that this estimate includes both direct and indirect costs.
As we outlined earlier, direct costs include items such as recruitment expenses, advertising, background checks, onboarding and training costs. Indirect costs encompass productivity loss during the learning curve, management time spent on hiring and potential costs associated with employee turnover. Both play major roles in the fees associated with hiring.
Strategies to Minimize Hiring Costs
With the surging costs of hiring, many organizations are left wondering how to reduce their hiring overhead. Here are the top strategies to reduce your cost per hire:
Streamline the Recruitment Process
Review and streamline the recruitment process to minimize unnecessary steps and delays. This includes creating clear job descriptions, optimizing job postings, and using applicant tracking systems to automate and streamline candidate screening and selection.
Related: Recruitment Process Outsourcing: What is it And How Can Your HR Department Benefit
Continuously Improve Processes
The time businesses spend on administrative tasks, including creating job ads, sending emails to new hires, and creating onboarding processes, all take time away from the core business.
It’s best to regularly review and refine your hiring processes based on new hire feedback and data analysis. By identifying areas of inefficiency or high costs, you can make targeted improvements that optimize the hiring process and reduce costs over time.
How Outsourcing Can Help
Outsourcing administrative tasks is one critical, cost-efficient way for employers to improve their cost per hire.
Without the need to pay employee overhead or the costs associated with expanding, businesses can save money outsourcing certain processes.
With outsourcing, you can skip administration fees, added office expenses or any other unnecessary costs.
Plus, outsourcing can help departments manage workloads during peak periods, without having to hire additional full-time staff—reducing staffing costs.
Related: Back Office Outsourcing: A Complete Guide
Conclusion
While adding a new team member is always an exciting cornerstone of business growth, businesses should also have a deep understanding of the intricacies and financial implications involved in the recruitment process.
Hiring a new employee is a significant investment, both in terms of direct expenses and indirect costs, which are often underestimated. We tend to count the costs of recruitment as the direct costs we can expense. This can include the cost of posting a job ad on LinkedIn or another online job board, as elements such as the $500 refer-a-friend bonus, etc.
Many businesses overlook critical recruitment costs like the productivity loss a team faces when onboarding a new hire, or the time it takes to do extra administrative work during the hiring process.
By recognizing and understanding the cost components, organizations can develop strategies to minimize expenses—like improving processes or outsourcing support staff positions.
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