“We’ll just hire someone to do that!” Have you ever found yourself uttering those words? Sounds easy, right? It certainly could be that simple, but many employers overlook the cost of hiring someone. The process is very involved and, at times, complex.
How much does the hiring process really cost? Let’s find out!
1. Recruiting and job posting
Whether a role previously held in the company by someone else or a completely new role, the hiring process will require recruiting. You may have an HR department, or you could even have an entire team of recruiters. No matter what your personnel resources may be, there will also be financial expenses.
The team completing the recruiting (whether that’s you or another employee) will be putting extra time into this process. Their time must be calculated in the overall cost to hire. The Society for Human Resource Management estimates that the recruiting cost per hire is around $4,700.
Additionally, the hiring process requires job postings on job boards and employment sites. These posts are rarely free, so they must be calculated in the total cost of the hire.
2. Candidate screening
Once a job is posted, candidates are recruited, and resumes and applications start rolling in, someone will have to take the time to screen those. For some job postings that could mean dozens or even hundreds of applicants. This will require time and care from someone. That will be a full-time task for someone to carefully screen each candidate and determine which best fits what you’re looking for.
So, unless you have an entire recruiting and hiring team, this will pull someone away from their other responsibilities. There will be financial costs to this and time costs for other projects.
3. Interviews
Depending on your interview structure, this step in the process could be quite costly in time and financial resources. Some companies interview once and then hire, but others have a multi-interview process. Whatever your process may be, each interview will likely take about 30 minutes. If you interview multiple candidates, that time adds up quickly.
Additionally, some companies complete interviews over coffee or lunch, which also incurs expenses. Keep this in mind as you choose how many candidates to interview. How many is too many, and how many is too few? The cost of time and resources is inevitable, but it can be managed well to avoid unnecessarily large expenses for the company.
4. Background checks
Background checks, drug screening, and other screenings are the new normal in most jobs. You will sometimes complete several different screenings to be cleared for a position. Each candidate you run a background check or drug screen for will cost you something. Generally, background checks cost something per check, so you can limit the expense of these fairly easily. The same is true of drug screenings, so screen wisely and manage this step in the process well.
5. Compensation
When hiring, this is the one category most people think of when discussing expenses: It will only cost us a salary of $_______. Compensation is certainly the highest cost in the hiring process, but it is also unavoidable.
When screening and interviewing candidates, keep their compensation requirements in mind. You know what your budget can handle, but it is important to consider their requirements as you make decisions in the hiring process.
6. Benefits
In addition to compensation, most companies offer benefits. Benefits will cost you extra expense overcompensation. Things like health insurance, PTO, and other benefits will add up on top of the salary and must be considered.
So, there may be a salary given, but what is the total salary package? Total Salary Package = Base Salary + Benefits
7. Taxes
Employers pay taxes for each employee in addition to their salary and benefits. Things like unemployment taxes and other government costs. Some are easy to calculate while others may be a little trickier or state specific. Be sure of each of these line items as you work through the hiring process.
According to the U.S. Small Business Administration, “There’s a rule of thumb that the cost is typically 1.25 to 1.4 times the salary, depending on certain variables.” This means that if you are paying someone $40,000 per year, then their actual cost to you will be more like $50,000 – $56,000.
8. Training
Training is never a free endeavor. Most businesses will pay for a new employee’s training time and resources. Will it require materials like books? Is there a separate team needed for training? What will the processing time be? How long will it take to get the new employee up to speed? Each of these questions reveals cost factors. Time, resources, and money may be required for the training process. For a longer training time, the cost will be much higher.
9. Equipment and resources
Does the new employee need new equipment? A laptop or computer? Headphones? Uniforms? There are many equipment and resource expenses to consider. If there is something you must provide to the new employee, that should be factored in. If there are items you already have and can repurpose, you may be able to help mitigate some of the hiring cost.
10. Productivity
Regarding productivity, Bill Bliss wrote, “The employee is only 25% productive for the first four weeks; 50% productive for weeks 5 – 8; 75% productive for weeks 9 – 12; and will finally reach full productivity after week twelve. Since this person is being paid at the full rate of pay during this period, there are still more lost productivity costs.”
Productivity is a necessary cost when initially hiring someone, but must be considered in the process. This will help you hire someone who will stay with you for a long time and avoid unnecessary turnover and constant rehires.
Bonus: Team Culture Costs
Everyone you add to your team will bring personality, characteristics, history, and other things to the table. While they will bring fresh perspective and skill to your team, they could also impact your team dynamic and culture. As you consider each candidate, consider the cost of adding them to the team.
How much does the hiring process really cost to your team culture? It’s important to learn how to measure this. Only you can truly know what your team needs and how to make a good hire and avoid a bad hire.
So, how much does the hiring process really cost? It costs time, money, resources, and talent. As your organization grows, hiring will be critically necessary. Next time you have to make a hire for your company, keep each of these things in mind. A hire is valued at far more than just the salary offered.
