What’s Included in the Cost of Recruiting a New Employee

Labor is typically a company’s highest cost. Calculating your cost per hire can help you make smart hiring decisions. But onboarding costs shouldn’t be left out of the equation. Understanding how much it costs to recruit and onboard a new employee offers a better understanding of the real cost associated with new hires.

The Cost of Hiring New Employees – Recruiterbox.com

What is included in the cost of recruiting a new employee?

Recruiting a new employee involves a range of expenses, from developing a recruitment infrastructure to paying for recruitment supplies. All of the systems, equipment and supplies that a business uses to support its recruitment operations should be a part of the recruiting budget. Each company has its own processes and methods for recruiting new talent to its team, but there are a few general expenses that most businesses incur throughout the recruitment process:

Recruiter salaries and benefits

One of the primary expenses for recruiting new employees is paying for recruiters who handle all of the manual tasks involved with hiring. The recruiters salary pays for them to create job postings, attend job fairs, research candidates at competing companies, conduct phone screenings and other recruitment activities. Any benefits that the recruiter receives are also a part of recruiting expenses. This includes the cost of their health insurance plan, professional development stipends, the value of paid time off and other standard employee benefits.

Referral programs

Many companies have employee referral programs where current employees can earn money in exchange for recommending candidates for open positions. These programs typically have restrictions, such as requiring the hired employee to work at the company for a certain amount of time before the existing employee can earn their referral payment. Referral payments can range from a few hundred to thousands of dollars depending on how difficult a position is to fill. Any companies that provide referral payments need to consider the cost of the payout for each new employee they hire based on staff recommendations.

Software

An applicant tracking system (ATS) is a software program with the specific purpose of guiding job applicants through the recruitment and hiring process. Companies purchase ATS software to make the hiring process more efficient and have a single hub where they can store all information about new candidates and prospective recruits. There are many ATS software providers that human resources departments can choose from, each with its own features. Software costs can vary from one-time licenses to monthly or yearly subscription payments.

Website development and maintenance

The cost of maintaining the careers page on a company website is a lesser-known recruitment expense. Recruiters rely on having an accessible, interesting and up-to-date website page to attract candidates who are specifically seeking jobs at their company. Website development costs can range from paying for web hosting to hiring a web designer to create the layout and code for the career web page.

Because position availability changes constantly, the careers page of a company website also needs frequent updates and troubleshooting to ensure it works appropriately. A good recruitment budget will factor for the time, tools and labor required to perform this maintenance regardless of how many employees the company needs to recruit.

Candidate testing

Outsourcing candidate assessments is a common practice during the hiring process. Recruiters or other HR professionals hire other companies to conduct skills tests and knowledge assessments for job applicants. This helps them gather more information about their qualifications and vet applicants before spending time in the interview phase. Candidate testing costs can be per applicant or they can be on a subscription basis from a job skills assessment service.

Job board access

Posting job advertisements on online job boards can have small costs that add up over time. One common pricing structure for job boards is that the poster pays a few cents every time an applicant clicks on their job advertisement. Some job boards have maximum limits for the cost per post, while others have no maximum amounts. Another pricing structure for job boards is charging a flat fee to host a job advertisement for a certain number of days. Its important to consider your advertising strategy when estimating how much youll spend on job board postings.

Agency partnerships

The money that a company pays to staffing agencies and recruitment firms can be another significant cost for recruiting. Companies can hire external agencies in place of or in conjunction with an internal recruiter, especially if they have specialty hiring needs within a particular area. Businesses that hire temps while searching for long-term employees often hire agencies to source these candidates and handle their pay. External agency costs can also include outsourced job advertising, headhunter fees and administrative expenses for managing temporary employees during the hiring process.

Background checks

Running a background check is a standard part of assessing job applications. Depending on the type of background check, costs can range from only a few dollars to hundreds of dollars. Recruiters pay for background checks to verify information about each candidate and determine if they have any concerning details in their criminal background. Some background check costs also include drug testing for candidates applying for sensitive positions.

Branded products

When recruiters attend hiring events, they often bring branded merchandise to hand out to potential job applicants. T-shirts, pens, water bottles and other free items can advertise the name of the company and remind candidates that they should review job openings at that company. Recruiters need to consider the price of printing merchandise with the company name and logo when preparing their recruitment budget. Recruiting merchandise costs can also include expenses like banners for booths at career fairs and printed information like flyers and pamphlets.

Travel reimbursement

When hiring for top positions, companies may pursue candidates that live out-of-state and offer to reimburse them for the funds they spend traveling to attend interviews and hiring events. A company might pay the travel reimbursement costs for multiple people applying for the same position, even if theyre only going to hire one person. When preparing a recruitment budget, its important to consider the total possible amount that a company could spend on reimbursing job candidates during the interview process.

Signing bonuses

Similar to referral bonuses, signing bonuses may only be valid if an employee stays in their position for a minimum amount of time. This means that a company could be paying recruiting bonuses to new hires months after their start date, making long-term budgeting important. Depending on the type of the position, recruiting expenses for hiring bonuses can be hundreds or thousands of dollars.

Moving costs

Some businesses offer to pay the moving costs for candidates who relocate to accept a position at their company. This could involve providing a set stipend for moving expenses or reimbursing the candidates for the amount they spent on gas, moving equipment and plane tickets. Companies hiring for top positions may even offer candidates assistance with selling their homes and finding a new place to live.

Why are recruiting costs important to consider?

Its important to consider recruiting costs before initiating a hiring plan to ensure that the HR department can pay for all of their essential hiring costs. Without planning a recruitment budget, employers might overspend on hiring and end up losing money through the recruitment process instead of getting value out of their investment into recruiting services. Considering recruiting costs allows you to make short-term and long-term hiring plans without having to worry about cash flow issues. This also prevents staff shortages that could occur if the recruiting budget ever ran out of money.

How to create a recruiting budget

Once you understand all of the elements that can influence recruiting cost, you can develop a reasonable recruiting budget that covers all of the most important items. A recruiting budget can help you determine how to allocate resources over time and be mindful about how much money your team spends on attracting new candidates. Follow these instructions to develop a comprehensive, realistic recruiting budget to guide your spending:

1. Calculate cost per hire

Develop a baseline for how much youve spend on recruiting in the past by calculating the average cost per hire over the past budgetary period. Add up all of your recruiting expenses across the categories listed above and divide them by the number of employees you hired during the same time period. Knowing about how much youre currently spending to attract new employees can help you determine if you can afford to spend more or if you should find a way to lower expenses.

2. Project the number of new hires

Create a prediction for how many people you plan to hire over the next budgetary period. You can make this projection based on current staff turnover rates, the average number of hires during past periods and any plans for expansion. Knowing about how many people you plan to hire can help you allocate the appropriate amount of funds to meet that need.

3. Determine changes to the recruiting strategy

Review each aspect of your recruiting strategy and rank your expenses from most to least important. Some businesses may choose to stop hiring external recruiters and instead invest in online recruitment tools and training for internal HR staff. Itemize all of your recruiting expenses and identify which parts of the recruiting strategy you want to change. Study which aspects of your recruiting plan are most effective and which ones you could trim from your budget.

4. List fixed and variable costs

When preparing a list of costs, remember to include both one-time and ongoing expenses. Identify which expenses you need to pay once and which onces involve recurring payments to develop an accurate projection for long-term recruiting resources.

5. Gather external quotes

Research how much it costs to get recruiting services from various providers by asking them for quotes. Compare low-cost and premium options, considering how changes in the cost could impact quality and effectiveness. This allows you to develop a general budgetary range based on your needs, then select providers based on what your company can afford.

6. Review internal policies

After calculating external costs, determine internal costs like hiring and referral bonuses. Ensure that youre prepared to pay for these costs for each open position and make adjustments to the bonus amount based on how much quality referrals are worth to the recruiting team.

7. Provide room for unexpected costs

When finalizing your budget, add in discretionary funds to handle unexpected hiring expenses. Sometimes new employees realize that a job isnt right for them and quit shortly after starting, which can result in additional costs that you didnt plan for. Having discretionary funds built in the budget prevents any cash flow issues for urgent changes to the hiring plan.

FAQ

How much does it cost to recruit new employees?

What is the average cost to recruit an employee? It costs employers an average of $4,129 and takes an average of 42 days to fill an open position, according to a report by the Society for Human Resource Management (SHRM).

What is the true cost of hiring an employee?

The average cost of hiring an employee is around $4,000, according to a Glassdoor study. However, various factors could impact that number, such as the size and location of your business, the role you’re hiring for, and the industry in which you operate.

What is the formula for costs of recruitment?

SHRM’s formula for cost per hire is the sum of all recruiting costs divided by the number of hires in a specific time period.

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