The Hidden Costs of Recruitment

Looking to hire for a new position? Adding new employees to your team can be both a rewarding and challenging experience. While a new recruit brings added value to the team, hidden recruitment costs can upset an already tight budget.

When hiring for a new role, it’s important to know what recruitment costs you’ll incur along the way. Due diligence will make it easier to budget your financial year by determining your output for hiring. A company can calculate total recruiting cost by adding up annual recruitment costs and then dividing by the number of employees hired during that year.

Estimates vary when it comes to annual hiring costs incurred by small to midsize employers. Highly dependent on the industry, companies can expect to spend between $1,000 and $5,000 per hire. Job level can influence recruitment costs. Larger companies with extensive screening may see higher costs. Smaller businesses with fewer hiring processes may see smaller fees. On average, it costs a company around 1-2% of their revenue to get a new hire trained and on-boarded. Let’s examine the recruitment costs that come with bringing on a new hire, as well as some of the hidden costs your organization may not be tracking.

Recruitment Costs

There are a wide range of recruitment costs to consider before hiring a candidate. Typical costs to employers include:

  • Advertising job listings
  • Utilizing an applicant tracking system to manage resumes.
  • Finder’s fees for third-party recruiting firms
  • Costs to attend career fairs and other networking events.
  • Costs for internal hours reviewing candidates and background checks.

Once final applicants have been chosen, companies must consider the costs to bringing in potential hires – reviewing resumes, scheduling applicants, screening, negotiating. Multiple interviews are commonplace, and can include expenditures through salaried employee time and online communication tools. If the interview process stalls without a job offer, or if a candidate quits within the first six months, employers can continue to incur costs until the role is filled.

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On-boarding Costs

Recruitment costs don’t end once a candidate accepts a job offer. Have you hired an applicant from out of the city or state? Or a candidate who was in high demand? Relocation costs and hiring bonuses are becoming a more standard part of the new hire process.

On-boarding a new candidate is another costly, but critical, action in the hiring cycle. Studies show that new hires are more likely to stay with a company long term if they’re welcomed with a structured process. In addition to costs for on-boarding training and materials, there is the additional purchase of office equipment, technology, and specialized training or certifications required for the role.

Hidden Costs

The surprising hidden costs of recruiting, however, can hit a company’s bottom line much harder when overlooked. Multiple employees are often involved in the hiring process, from writing job descriptions and advertising positions to interviewing and on-boarding candidates. But many employers tend to miss the high price of productivity loss when a new hire officially joins the team. While managers and co-workers adapt to bring a new employee on board, work is shuffled and can slow down to a trickle. According to one study, new employees may function at only 25% of the necessary speed, taking nearly five months to finally reach 100% productivity.

Oftentimes, companies may see additional turnover as new employees are incorporated into the team. Personality clashes, ineffective on-boarding processes, and a lack of skills can all contribute to office conflicts. Whether due to morale issues or general job dissatisfaction, a new hire may result in additional job terminations, increasing an employer’s annual recruiting budget spend exponentially.

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The effects of a bad hire can be even more costly for employers. If a new employee is hired hastily without proper background checks or skills review, the ripples can be felt in a myriad of ways, from a loss of sales and business relationships to a negative impact on both management and employees. More than 40% of companies report that bad hires affected their offices negatively. And the average price of a bad hire clocks in around $17,000, in addition to the costs of starting the hiring process all over again.

Additional Hiring Considerations

A general rule of thumb when calculating recruitment costs is 16%-20% of the employee’s starting annual salary. Possible fees to consider throughout the year may include general company advertising and annual charges for specialized job boards or professional organizations. Employee referral programs are a great way to acquire talent through sources you already trust.

When looking to hire for new positions, planning is key. Tracking the results throughout the year can help to plan your budget for next year. Knowing your total recruiting cost, and anticipating any hidden fees, will make your next round of hiring a success.