cost of hiring a new employee

Cost of recruiting a new employee

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When planning your annual budget, which is something that every company should do, you need to include the cost of hiring a new employee. Salaries, bonus and benefits and the cost of recruitment would be included on this list amongst other things.

Entrepeneurs and finance managers would usually think on the invoices you receive.

  • Recruitment agency (from 10% to 20% of the new employee’s first year).
  • Job boards advertising
  • Salary package such as (bonus, salaries and other benefits)

However, there are some details that most small and medium companies forget when doing a HR plan. The cost in terms of time spent (that you pay in terms of payroll and could be doing something else) of those recruitment processes that you have planned.

How much does it cost to recruit a new employee?

These unplanned time ends up being the reason for plenty of young companies fail to deliver their HR plan. They usually have to reduce numbers in the middle of the year due to the unexpected cost of recruitment. We are not only talking about hiring a recruitment agency, but about the hidden costs, 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 important to get recruitment right from the beginning is that you don’t want to repeat it.

The failure of recruitment and the onboarding means money.

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

ConceptComments***Minimum time invested
Analyse the roleThis 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.1 hour
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.
Download our template or if you have one, but do it right 🙂
1 hour
Attracting candidates (Internally)Write an attractive advert. If you have done the previous step correctly, it can be much less time, and even less if you have already a fantastic template for all your adverts. However, make sure you do something that can not be resisted30 minutes
Post it online. Expand your net. There are plenty of places where you can advertise your new vacancy for free30 minutes
You can also do it yourself attracting candidates to your careers page by owning the traffic.30 minutes
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.2 hours
If you decide to post in some of the most frequent and generic job boards, – prices from £165 in the UK
Monster from $265.00 if you purchase 10
Total Jobs– from £149 in the UK
Linkedin: The price varies from country to country and city by city and depending on the amount of ads you buy in advance.
1 hour
Review CVsIf 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.2 hours
Telephone interviewsThis is usually very time consuming (Time = Money) so we recommend that you do them short and just to the key candidates that you really want to interview3 hours
Face to face interviews Same as above. Plus inviting candidates & arranging the meeting room, etc… 4 hours
Offer and NegotiationIf you have everything prepared and it goes smoothly, it can be short. However, the more complicated the role is, you might have to spend time on this. 1 hour
ContractOnce you have an standard template it can be simple and easy. However, if you are doing your first contract, please send it to a lawyer in advance and review it carefully when done. 1 hour
Onboarding processThe 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.

***5 hours of onboarding process is a very poor one, unless you have it automated, but is the minimum ***

Bear in mind that the onboarding should last for at least the first 90 days.
5 hours

***Please note that the hours above are the minimum that you could spend, usually as a professional who has everything standarised, taken this in to consideration, multiply at least by 2 the total amount of hours ***

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 if you haven’t planned for it.

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!

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