Hiring new staff can be costly and possibly the most expensive aspect of running a business. However, employees are the driving force behind a company’s growth and success, making the hiring process an exciting opportunity.
Cost-per-hire or CPH, as defined by the Society for Human Resource Management (SHRM), is a financial measure of the resources expended to fill a job vacancy in an organization. This metric has been utilized for many years to assist human resources and recruitment professionals in establishing budgets and performance standards.
The following formula shows you how to determine your cost‐per‐hire.
To correctly count the cost per hire (CPH) it’s essential to consider all components of this cost, so let`s try to break it down:
- The cost of having an HR manager or team for a company’s hiring process.
The estimated salary for an HR manager ranges from $61,000 to $120,000 per year. The HR manager is responsible for everything from setting up job ads to making an offer to the candidates.
To calculate the cost per hire, it’s necessary to understand the HR manager’s hourly salary and the number of hours required to hire a new employee. The estimated cost of hiring using this method is $7,700 for 20 hours of work by an HR manager.
- Fees paid to third-party recruiters
The majority of agencies operate on a performance-based model, meaning they receive payment only upon successfully placing a qualified candidate. This type of service typically costs between 10% to 25% of the employee’s yearly salary, with potential added incentives for recruiting top-level executives.
The amount you may need to compensate a recruitment agency varies based on the salary you offer to your new hire. Here’s what we get when we plan potential costs:
- Costs spent on Job platforms
Recruiting internally comes with the cost of advertising job vacancies, and job ad fees vary depending on the site used:
- LinkedIn charges $1.20 to $1.50 per click on a job application.
- Monster with monthly subscriptions ranging from $400 to $649 per month
- CareerBuilder offers monthly subscriptions ranging from $425 to $750 based on the number of job roles applied.
- Dice offers a job posting from $495 up to $1200 for 30 days
- Onboarding and Training
Onboarding and training costs are often overlooked when considering the cost of hiring an employee. Nevertheless, expenses associated with hiring a new employee usually include the following:
- Administrative expenses and person-hours spent on paperwork amount to approximately $400 per employee.
- During the onboarding and training phase, there is a loss of productivity as new employees function at about 25% productivity for their first four weeks. It may take up to 26 weeks for them to reach expected performance levels.
- Workspace setup costs can range from $500 to $1,000+ for software companies and agencies, which includes items like dual monitors, keyboard and mouse, webcam, etc.
- A welcome kit may cost between $20 and $100 for each new hire.
- Travel and relocation expenses vary between $21,327 to $79,429 depending on the type of relocation required.
- Employee training and support can cost around $1,300 per employee.
Company culture & morale impact: high turnover rates could negatively impact workplace culture and trigger turnover contagion. This could result in an increase in hiring and onboarding costs.
- Security Clearance and Background Checks
This category encompasses expenses associated with criminal, education, credit, and reference checks conducted on potential employees. It also comprises costs related to work eligibility and immigration.
Setting aside security clearance, the price of a typical background check may vary from $25 to $60 based on the level of detail required.
In conclusion, while hiring new employees can be an essential step in growing your business, it’s crucial not to overlook the associated costs. Business owners need to take a comprehensive approach by evaluating all expenses around recruitment and onboarding before making any final decision about staffing levels within their organization. By doing so they’ll ensure that they make informed decisions that benefit both their company and future employees.
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