The True Cost of Hiring a New Employee

By Predictive Success  |  

9.6 min read

Cost of Hiring a New Employee

Successful businesses require spending money to make more money. Every day, organizations make financial decisions to improve growth. Investing time and money into finding the best employees is one of the smartest decisions for your business. The average cost to hire and train a new employee can be quite expensive, and that is why it is vital to find the right people to work for your business.

Hiring can be a complicated process, more so for a small start-up business. It is important that the person in charge of hiring has the right skillset, is understanding, has a dedicated timeframe, and the finance liberty to properly fill each position at the organization. How much does it cost to hire and train a new employee? That varies, but that is exactly what we are assessing in this article.

We wanted to get an estimate of how much the average cost of to hire an employee is, so we broke down the most commonly seen hiring costs from all fields. We looked at these expenses and came up with ways that your business can minimize hiring costs and maximize your profits.

Section 1: The Most Common Costs of Hiring

  1. External Recruitment Specialists
  2. In-House Human Resource Department
  3. Job Fairs
  4. Career Board Costs
  5. Pre-Employment Screening
  6. Onboarding and Training New Employees
  7. Website Career Section

    1. External Recruitment Specialists

Many organizations do not have Human Resource department to take charge of the recruitment process. Small businesses and non-profits often have very small teams, with employees that successfully handle several roles. We took away a couple of impressive factors from this study, that include:

  1. When a business is small, it is not required to have a dedicated HR leader.
  2. Having only a few employees means hiring the best candidates possible for the job.

An additional piece of information that we discovered when we studied small businesses, is that owners can spend up to 40 percent of their day on fiscally draining tasks, like recruitment.

There are available programs that can help with the recruitment process, which gives businesses time to focus on other needs. These can include scanning resumes to determine who has the required skills, and creating job assessments.

Businesses can also seek assistance from recruitment specialists. These external human resource experts can be very useful for finding ideal candidates, but the downside is that they are often quite expensive to use and include a hiring fee.

Recruitment specialists often use a method where they are paid a hiring fee only if they find the best candidate for the job. According to this Forbes article, the cost of recruiting employees can range between 15-25 percent of the annual salary of the newly acquired staff member. This means that recruitment costs can be tens of thousands of dollars, which is why finding the perfect fit for your business is so important.

2. In-House Human Resource Department

When your business grows, it will be necessary to invest in a human resource team that can develop their own hiring system. Hiring this team will cost the business money at first, but they can be the key to successfully finding better fitting recruits.

A growing organization needs to have at least one human resources manager if they want to be successful. The human resources manager will handle creating the advert for the job, posting the ad to career sites, screening and checking referrals, assessment and interviewing, and offering the job to the best candidate.

A human resource department will take care of many other tasks along with hiring candidates. Although they can be very helpful, it is important to remember that it only makes fiscal sense to have internal hiring experts if their salaries are less than the expenses lost of you handling their responsibilities.

3. Job Fairs

While the internet offers many options for finding recruits, there are times when it is beneficial to seek out employees offline. Searching for new employees at career events and job fairs, where you are able to distribute information about your business, respond in real time to questions, and meet potential candidates face to face can be extremely helpful.

Career fairs are often held at colleges and universities because this will attract fresh new graduates to your business. Often the cost of having a table at these types of events is quite low, but related expenses such as food, travel, banners, etc. can add up. Selecting the best job fairs for your business needs will require consideration, so that it does not become an overwhelming expense.

4. Career Board Costs

Once the advertisement for the job opening has been created, the next step is to post it where it will get noticed. So, how much do companies spend on recruiting? The total amount will include the cost of posting your ad, which is rarely free, and can add up quickly.

We looked at LinkedIn, which is one of the best tools for finding employment. Until recently, their price chart showed that it will cost $495 for a single advertisement being shown for 30 days. More recently, it has been changed to a pay-per-click system. According to WebFX, the current cost of recruiting employees on LinkedIn is $5.26 per click, $6.59 per 1000 impressions, and $0.80 per send. Having a budget that covers the cost of hiring is necessary because these advertisements can be beneficial, but costly.

We compared the cost of posting to Monster – another popular job bank. According to a recent Glassdoor article, Monster has subscription plans ranging from $249 per month for one position, a mid-range option costing $449 per month for two positions, and a Premium option costing a business $999 per month to post five job openings. For each option, the business is limited to a certain number of incoming resumes, which can limit options for finding the perfect candidate.

From these examples, recruitment costs can add up, even when using online job boards. It is vital for organizations to know exactly what they want, so they can find that person as quickly, and inexpensive as possible.

5. Pre-Employment Screening

As soon as the perfect resume comes in, it is important that a business knows the background of the potential hire. It can be beneficial to run a pre-employment screening before hiring.

Businesses can check that the information that candidates provided about their schooling, work experience, as well as if they have a criminal record that could pose issues. Verifying this information can be useful, but depending on what information you want access to, it can run expenses up.

6. Onboarding and Training New Employees

Hiring a new employee, it is likely they will need some time to adjust to the job, making them less efficient at first.  It can often take new employees several months to fully ease into the job and become productive workers.

When we think about how much does it cost to hire and train a new employee, it is important to consider the time it takes for them to become fully productive. During this adjustment period, the business is essentially losing money, until they become fully capable employees. Once they have become productive workers, they business should start seeing the results of the time and money they spent investing and break even.

Depending on the role, it can take more or less time to get the hang of things. For example, a cashier will require less time to train than a manager. Depending on their skillset and previous experience, the average cost to hire and train a new employee will vary.

Ideally, businesses want employees who are quick to learn, but training rarely as simple as desired. People will require the time it takes them to figure out their tasks and understand their role in the organization.

The training of new workers starts on their first day, and continues until they are self-sufficient. When businesses try to calculate the average cost to hire an employee and train them, it depends on their role and how long it will take them to be successful workers.

7. Website Career Section

One of the most direct ways to find people that are interested in working for your business is to have a career section on your website with available openings. By posting job ads directly to your website will make it easier for the people who already care about your business because they are already looking at it. Keeping this information accurate and timely will help improve your chances of finding an interested candidate, while not having to pay another business to advertise the job for you.

8. Employees Annual Salary & Benefits

When creating job advertisements, you will need to determine how much salary you will be offering to fill that position. Salaries are great to receive, but can be complicated to set up.

Your finance manager will need to consider the local tax rules when setting up new salaries. If a salary is set at $40,000 annually, it could mean that the business is really paying a salary of $50,000-$60,000 annually to cover the tax costs, and that total does not include bonuses, benefits, or other incentives that the business offers.

Another factor to consider, is that employees will want their salary to grow. Over time, employees will learn more and become better workers, and will expect their salary to reflect their time and dedication. It is important to factor this into the company’s budget when considering the cost of hiring a new employee.

Section 2: Reducing Your Hiring and Recruitment Costs

  1. What Is The Average Cost to Hire An Employee?
  2. How Can Businesses Reduce Their Hiring Costs?

What Is The Average Cost to Hire An Employee?

How much does it cost to hire and train a new employee? While we know how much certain things cost, other expenses can vary, but we do know enough to make a calculated guess for an estimated total.

  • According to a 2019 report from Training Mag the average cost to hire and train a new employee is $1,286 per year.
  • Another study by SHRM found that average cost to hire an employee is $4,129, with an average time of 42 days to fill a given position.

Finding a worker to replace another employee, rather than finding a good fit for a new role can result in even more hiring costs. This is because it is proven that this role is required for the success of the business and there are now expected standards in place for that position, so the cost of hiring is often higher than it initially was when the position was first being filled.

How Can Businesses Reduce Their Hiring Costs?

There are ways to reduce the cost of hiring a new employee, which can be taken advantage of. There are sourcing tools and screening software that businesses can use when starting the hiring process.

Using social media can also be a great tool for finding new employees. If your current employees are able to post your job ads to their networks, you may find the ideal candidate for free by doing that. To increase the likelihood that your current employees post the ad, a referral program can be set up. People will be more likely to push your ad if there is a benefit for them in finding the perfect candidate.

Finally, a last tip for reducing your turnover costs is to engage with and support your existing staff members, making them more likely to stay with your organization. Creating an environment that people will want to work in and stay at will encourage people to stay there as long as possible, saving your business recruitment costs.

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