How Much Does It Cost to Recruit an Employee?

PRemployer on August 17, 2022

How Much Does It Cost to Recruit an Employee?

Recruiting an employee is not cheap. We tend to think of employee costs primarily as wages and benefits, but finding the right new hire to join your team has many costs beyond the new workers' salary. 

Because of this, it is important to budget and plan accordingly and try to reduce turnover, so you are spending less on hiring and recruiting.  

The Cost of Recruitment 

The average cost per hire is approximately $4,000 in direct costs. That includes costs such as placing ads, interviewing candidates, potentially paying expenses for candidates, employee referral benefits, and the time spent by internal recruiters. Outsourcing recruiting can also incur costs.  

The average cost of training per year at small companies is $1,105 per employee. New employees cost more to train than those who only need a refresher course. 

It typically takes eight months for a new hire to reach full productivity. Furthermore, productivity for the first month is about 25% of what it will become, which incurs substantial and hard-to-measure indirect costs. There are also indirect costs from vacancies because other employees must complete the work left by the other employees. That potentially lowers morale or takes people away from revenue-generating tasks for administrative ones. To make things worse, many new hires are already looking for their next job. High turnover can mean that you never achieve full productivity from a given position, in addition to substantial costs, which can be 33% of the employee's salary. 

Recruitment efforts take up about 15% of your HR budget. Many smaller companies struggle to afford the tools, such as talent acquisition software, that can reduce the time it takes to hire a new employee. 

Efficiently Managing Employees Lowers Costs 

The best way to reduce these costs is to manage your employees efficiently. That helps improve retention rates and get employees up to speed quickly. Good onboarding methods can and do help reduce the time to peak productivity. Increased morale also increases productivity and reduces turnover, and HR plays a vital role in supporting and improving engagement and morale.  

Two things to focus on are: 

Hire and Train Efficiently 

Proper hiring and training help get employees to become efficient and productive quickly. It also makes them feel more welcomed and supported. When a new hire is left to work things out themselves, they are likely to feel, rightly or wrongly, that their presence is not appreciated and that you will not invest in their future. 

It is vital to make a good first (and second and third) impression on new employees by conducting hiring, onboarding, and training well. A critical aspect that too many companies neglect is mentoring. Assigning each new employee a mentor can help by instilling institutional knowledge, answering questions, and giving advice. Also, ensure that there is something for your new hire to do immediately. Nobody wants to be sitting around waiting for IT to set their account up and for somebody to give them some work. They will instantly feel overlooked and forgotten, and this feeling will impact their lasting impression of the company, potentially transferring into a desire to find a better job.  

Too many companies put too many "frills" on hiring. Welcome parties are all very well, but their luster soon wears off. They can rapidly turn into, or at least appear to be, using the new employee as an excuse for a catered lunch. The new hire is more likely to appreciate proper guidance and professional development opportunities that demonstrate your loyalty and help them understand their role. 

Improve Retention with a Great Culture  

Getting employees to stick around also requires a supportive internal culture. Your culture should support and promote the growth of your employees and provide them with training that not only makes them better at their job but supports their long-term personal goals. Excellent internal culture and providing a safe place to share ideas helps employees feel comfortable in their roles and makes them want to stay. Make sure to develop a culture of appreciation where people routinely share praise and thanks and minimize criticism of what is necessary and productive. 

Additionally, it costs more to hire new employees into more senior positions, especially executive roles, than those already familiar with the company. By training your internal staff, you can identify individuals with the potential for promotion. Promoting internally is less costly and only requires filling a lower-level position. That also improves morale by sending a message that it isn't necessary to change jobs to advance, which many younger employees believe. That does not mean you should dangle a promotion in front of one of your employees if it will never materialize. Instead, you should make it clear internal promotion happens and clear what is required to advance. 

Become More Efficient with a PEO 

However, your HR staff cannot accomplish this if they are overburdened with routine administrative tasks such as payroll and benefits administration. Partnering with a professional employer organization (PEO) takes these tasks off their plate. It frees them to work on your company culture, be there to answer employee questions, design a streamlined onboarding process, etc. PEOs also allow you to provide better benefits for a lower cost and can give you advice on improving your procedures to improve recruitment and retention. 

Partnering with a PEO is the best way to improve employee relations and lower administrative costs. 

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