HR for SMEs is a blog created in the beginning of 2018 with the idea of sharing knowledge. To bring to Small and medium enterprises owners the knowledge of a HR Manager
When planning your annual budget, which is something that every company should do, a cost to include should be the cost of hiring a new employee. Salaries, bonus and benefits and the cost of recruitment would be included on this list.
However, there is an small little tiny detail that most small and medium companies forget when doing a HR plan. The cost of those recruitment processes that you have planned.
How much does it cost to recruit a new employee?
Plenty of young companies fail to deliver their HR plan. They usually have to reduce numbers due to the unexpected cost of recruitment. We are not only talking about hiring a recruitment agency, that will vary from adding a 10% to a 20% of the new employee’s first year salary to your budget.
However, there are also plenty of hidden cost, economical and non economical that could destroy your HR plan and therefore, the objectives of your SME for the year.
So, How can I calculate the cost of recruitment?
An study showed in 2017 that, within the UK, the cost of recruiting a new employee internally was £6,000 for senior managers and £2,000 for all other employees.
As we have mentioned in a previous post, a recruitment process can be hard in terms of time and effort. However, the main reason why it is so important that recruitment processes go well and the onboarding it is well thought and executed is because the failure of it, it means money, as indicated on the study done by the CIPD and Hays, the HR Consultancy.
In the cost estimated shown above, there are some economical and non economical costs.
Even if you think you are only investing time… think about what you could be doing with that time. E,g, meeting clients, improving processes, training your staff, providing services to your clients, learning about new ways to improve your business, etc…
If we calculate, let’s do it based on time…
Time invested in the recruitment process
- Analyse the role: This part will take your time and some of your colleagues, it may not be a week of your time, but it will definetely take some hours.
- Write the job description and the person specification: In order to be successful, a good job description will be needed to find the perfect person. Writing, reviewing and approving this documents will also take some of your time.
- Attracting candidates (Internally):
- Write an attractive advert
- Post it online. If you decide to do it on the free job boards available, you can find some on this article
- You can also do it yourself attracting candidates to your careers page by owning the traffic. If you don’t have a decent amount of visits, you can follow some of these steps to improve your talent attraction. This, again, is time and money, so please, include it on your budget.
- If you decide to post in some of the most frequent and generic job boards,
- Review CVs. If you have done the previous steps properly you should be receiving at least 100 cvs per role. Reviewing this, answering to candidates, etc… could take you up to 1 day if you are not an expert.
- Telephone interviews : time consuming (Time = Money)
- Face to face interviews: same as above.
- Onboarding process. The onboarding process could be very time consuming, worth it, no doubt, but extremelty time consuming. It can also be costly if you decide to print a t-shirt, or do some ad hoc training for every new employee. If you don’t plan this in advance, it could be extremely costly and could finish with your new hires budget before you start. Planning is key. Plan the perfect onboarding process in advance.
There are multiple ways of doing recruitment and onboarding, internal, external, cheap or expensive. What is sure is that you may find plenty of hidden cost in your way and this could ruin your year.
Even when different people do it, we usually underestimate the time spent on this, and how it affects cost of hiring a new employee. Time is money!! You are paying salaries and again, time is money!
Outsourcing to recruitment agencies
We have focussed on the cost of the internal recruitment process. However, many companies externalise the part of attracting people. They do it to save time and money and get specialised profiles quicker. If you are opting for this solution, please make sure that you do the first part and you work on the interview process.
Having candidates doesn’t mean that you will find the candidate you need. Having said this 🙂 If you want to outsource the attraction of talent, bear in mind that this will cost you around a 10 to 25% (depending on the experience, level and country where you are hiring) of their annual salary as a fee to the agency. Just to clarify that this fee is added to their salary, it is not taken from the employee.
They usually only charge if you hire the candidate, so it can be another option if you are struggling to find candidates, but it is a big increase on the cost of hiring a new employee.
We really hope this was useful!