The average cost to hire a new employee is almost $4,700, according to the Society for Human Resource Management, but that doesn't account for variables such as compensation and benefits. Some employers report the true cost is significantly higher, up to three or four times the hire's salary. So, if you hire a candidate at $60,000 per year, the total expenditure to fill the role may be as high as $240,000.
These figures seem unbelievable until you examine the full range of costs in finding, screening, interviewing, and onboarding new talent. It may also seem unnecessarily high unless you consider every new hire an investment that you intend to recoup many times over in the long term. To help you understand the ins and outs of hiring costs, let's examine why you should know the cost of hiring an employee, the expenses associated with the hiring process, and some tips for cutting costs without compromising on candidate quality.
Why is it important to know the cost of hiring an employee?
A company should know its hiring cost because:
- Every company needs employees to generate revenue.
- Hiring and paying employees are major operating costs.
- All operating costs affect profitability.
Not knowing the cost of hiring an employee could impact your organization's finances. Wise business decisions rely on leaders knowing the cost of a pursuit relative to the amount of money they have at their disposal. Unless you know the cost of hiring and developing your workforce, you don't know how much money you can put toward other efforts. You run the risk of spending more capital than you have to spare.
"Unless you know the cost of hiring and developing your workforce, you don't know how much money you can put toward other efforts. You run the risk of spending more capital than you have to spare."
What expenses go into hiring an employee?
The expenses that go into hiring an employee may vary depending on a company's hiring process, but the list is typically extensive. Here are some of the most common outlays:
Website operation and maintenance
Your company's official website indirectly influences hiring because it's a resource candidates may use to evaluate your desirability as an employer. When you factor in web hosting, the domain name, and tech support, the total cost of operating and maintaining a website can reach upwards of $60,000 per year. That's without considering the costs of running your internal IT department.
Human resources
Your company's HR department is responsible for publicizing open positions and identifying the ideal talent to fill them. An HR team member may handle multiple tasks associated with recruitment and hiring, including:
- Developing hiring standards and policies
- Setting salary ranges
- Writing job descriptions
- Posting job listings
- Receiving and screening applications
- Arranging interviews
- Onboarding/training new hires
Keep in mind that the average salary of an HR specialist is $73,000 per year, while an HR manager earns an average of $146,000 per year. The size of a company's HR department normally depends on its total number of employees, so the cost of maintaining your HR team can be quite high.
Third-party recruiting
You may need to turn to third-party recruiting if your HR resources are too limited to handle the hiring process from beginning to end. Doing so saves time and energy for your internal team but can come at a high cost, as staffing agencies typically take a sizable commission based on the first-year salaries of the talent they find for you. For perspective, imagine that you hire three employees through a third party, and each of them earns $60,000 per year. If the staffing agency takes a 25% commission, each hire costs your company $15,000 — a total of $45,000 — just to get started.
Posting your openings
You may want to post your job openings on a widely used employment platform to ensure that you reach as many viewers as possible. Access to the largest audiences may amount to several hundred dollars per post, or you could pay a higher but discounted fixed rate for a predetermined number of posts.
Screening applicants
Screening applicants, the process of sifting through applications to find qualified candidates, can be the most time-consuming part of hiring an employee. Most companies now use applicant tracking systems to screen applicants, but that itself is a considerable cost. Paying per vacancy can cost hundreds of dollars, while a subscription can run into several thousand dollars at the minimum.
Performing background checks
Background checks are essential to validating the information on a candidate's resume and examining any potential criminal history. The cost of performing these checks can vary widely. You can use free checks via government websites and public records, but these usually take time and may not offer the type of validation you need to move forward with a candidate. Other tools may cost from a few dollars to more than $100 per candidate.
Onboarding and training
Onboarding integrates new hires into the company while training acclimates them to the technical demands of their position. Your company may spend from $700 to over $1,400 per new employee for these critical elements of the hiring process.
Compensation and benefits
The cost of employee compensation depends on how much you offer to pay each of your new hires. As for benefits, the U.S. Bureau of Labor Statistics found that employers spent an average of $13.58 per hour per employee. For a full-time employee who works around 2,080 hours per year, that amounts to over $28,000 per year for every person your company hires.
Tips for reducing the cost of hiring a new employee
Consider these tips to minimize the cost of hiring a new employee without diminishing the integrity of your hiring process or the quality of each new hire:
Leverage technology in your hiring process
One of the most exciting trends in HR is the introduction of artificial intelligence tools to scan resumes. AI in HR can do more than save time. It may also identify candidates who stand the best chance of fitting into the company culture and staying for the long term. Then, once they're on board, the AI system can monitor their performance to calculate the return on investment in their employment without the HR team devoting excessive time and resources to the effort.
Implement an employee referral program
Cut your recruiting time and costs by incentivizing your existing staff to identify candidates. The amount you offer for referral bonuses is your decision, but even a $3,000 bonus per long-term hire is better than giving $15,000 in commission to a staffing agency.
Take advantage of social media
Building a strong social media presence can help you reduce or even remove some of your hiring costs. If your online branding is strong enough, you might manage without an official website. Companies can even use social media platforms to advertise openings for free.
Mix up your workforce
"Labor mix" refers to a workforce that comprises full-time, part-time, and contingent staff. If you focus your full-time staff on the most valuable and productive business areas while supplementing the rest with part-timers and freelancers, you could realize savings in areas such as compensation and benefits.
Remember, every new employee you hire is an investment. Take your time and use your resources wisely to select the best investments, and you stand to profit later. In the meantime, you can reduce your costs through simple measures, but make sure not to strip away important tools that might allow your company to attract top-tier talent.
More tips about hiring talent for your organization
Every organization wants to hire the best possible talent within its budget. Implementing clever recruitment strategies can be the key to attracting the candidates you need.
In addition to well-considered recruitment, you need a strong and streamlined hiring process to reduce costs and maximize value from every addition to your workforce.
You don't have to look outside your organization to fill vital roles. Often, the best candidate for a vacant position is already part of your team.
