A number of articles and research quote wide ranging figures for the cost associated with recruitment of new employees, these can appear contradictory or confusing. So what costs should you consider when looking at the real cost associated with engaging a new employee, and why should you consider them in your search recruitment strategy?
- Identify the need for the new employee
Is this a new role? Has HR worked with Finance to ensure the fit into the business’ strategic plan? Has the departmental manager worked with HR to ensure a robust job specification and considered the training and development needs?
So what costs are involved at this stage? Some may say none as there has been no invoice for this work and thus no cash leaving the business. However the work is being carried out as in house and time still equates to a cost (hours spent x cost of employment cost). It may be that some of the people involved can have their work charged to customer contracts (direct operations for example), therefore the time spent on recruitment matters is an opportunity lost for the revenue stream.
This time spent in the initial stages should ensure that the right person is engaged thus minimising training costs and increasing retention.
In considering someone new is needed HR can also help identify any internal staff with the right skill sets and development potential which would eliminate any external recruitment costs such as newspaper and internet advertising as well as use of search recruitment agents.
- Identify the impact on other team members
Whether a new team member is already within the organisation or is an external recruit there is an impact on the other team members. Areas to consider are pay rates/ benefits and comparable pay, training needs of the whole team, and team morale.
If a new team member is a replacement for someone who has left consideration needs to be given to why that person left and the impact on the team. Someone who has left under negative circumstances could mean that the morale and therefore productivity of the whole team is low which creates issues in meeting customer deliverables and could affect the quality of the product. This therefore creates costs to the business of client invoicing not being made on time and product signoff/returns issues both of which are usually significant business KPI’s.
It is important for HR and Finance to work together to look at the pay and benefit rates of the business to ensure financial viability and equal treatment for all (especially given recent statistics on the gender pay gap).
Costs of training are important within all organisations and are often an area cut by Finance when budget reviews are taking place, therefore HR must ensure that a robust personal development plan process is in place so that economies of scale can be obtained when looking at training providers to ensure the best cost for the business (and least cash leaving it!).
When a new person joins a team there will be a need for in house training and taking someone away from their day job whilst the training takes place
Consider what you need to do to retain your existing staff, pay and benefits packages? Training? Development opportunities? And work with HR to develop objectives to fit with your strategic plans.
Within the recruitment process whether you choose to advertise and sort CV’s yourself or whether you choose to partner with a search recruitment agent, time spent is critical. Consideration needs to be given to sorting CV’s, setting up, preparing for, and attending interviews. Then providing feedback and making job offers. Consider how much of this time would be saved (or not) if you were to retain existing staff and replace internally. But contrast this with how much you pay a search recruitment agent and how much of this time they could save for advertising, sorting CV’s, interview set ups, and providing first interviews.
Time spent in identifying the need for replacement staff x cost of employment rate of staff investigating this
- Time spent in reviewing plans and job specifications x cost of employment rate of staff investigating this
- Time lost on client contracts x charging rate whilst recruitment process takes place
- Costs of poor quality through low morale
- Costs of external training of new staff
- Costs of internal training of new staff x cost of employment rate of staff providing the training (and staff being trained)
- Costs of new salary and benefits
- Costs of new salary and benefits identified as needed within this process
- External Job Advertising and Agency fees
- Internal time savings through using an agency
Equals cost of new employment
Time spent in identifying the needs of staff x cost of employment rate of staff investigating this
- Costs of poor quality through low morale
- Costs of external training for staff
- Costs of internal training of staff x cost of employment rate of staff providing the training (and staff being trained)
- Costs of new salary and benefits packages
Equals cost of retention