Do you know every time you replace an experienced employee from your organization, it costs you 10 times the salary of the replaced employee? According to Deloitte, the average cost-per-hire is $4,000. It takes 50-60% of the employee’s salary to find his or her direct replacement. Although the true cost of hiring a new employee will vary by region and industry, the real cost can be high. The cost of hiring an employee does not just include his or her salary. It includes recruiter’s salary, time and efforts, training and onboarding costs, and more that add to the overall expense in making a new hire. Here are the most common factors that add to the total cost of hiring one new employee.
Recruiter’s Salary and Time
You need a human resources (HR) recruiter to oversee your company’s recruiting process. According to Payscale, the average salary for a Human Resources (HR) recruiter in India is INR 228,576. A Human Resources (HR) Manager with 5-9 years of experience asks for an average of INR 724,927 as compensation.
You need at least one HR recruiter and one HR manager to look after the entire HR administrative process. These HR resources will dedicate their productive hours in screening, calling, interviewing, meeting, and hiring one candidate. The same hours they can devote to some other HR works such as payroll calculation, engagement activities, onboarding, etc. So, when it comes to hiring a candidate, you don’t just have to add the recruiter’s and HR manager’s salary but also the time they are taking in finalizing a candidate.
Career Events, Job Boards, and Social Media
Nothing comes free these days. Whether you are using Naukri.com, Monster, LinkedIn, or campus placement as a means to hire top talents, you will have to pay the price from your company’s account. According to Glassdoor, the cost of participating in a job event is between $125-225. Plus, you will have to pay for your hiring manager’s accommodation, travel, and marketing things.
LinkedIn uses pay per click model for the job ads that you place on this social media channel. You will be charged $1.20 to $1.50 per click on your job advertisement.
Similarly, Dice charges $395 for one job posting that will remain active for 30 days. Monster charges $375 for 60 days.
No matter whether you use a job portal or social media for attracting and engaging candidates, there is a certain amount associated with each hiring method. Whatever process you choose, you will have to pay price and that should be included in the total hiring cost.
Onboarding and Training
Most organizations fail to fully consider the cost of onboarding and training a new hire. 50% of newly hired senior executives fail within the first 18 months because of the poor onboarding experience. According to a study, 4% of employees leave their organization after the very first day because of a bad experience. To ensure new employees understand the company goals, structure, work culture, and environment, most companies organize orientation and induction programs.
The team manager spends some time every day on the new recruit to help him or her understand his or her work and develop compatibility with the team. From form filling, document collection to preparing salary slips, onboarding a new employee also adds to the accounting costs.
So how to calculate the cost of onboarding a new employee? If you put a dollar value against each process – form filling, document storage, specific job role training, stationery, induction hours, etc. – you will find that you are spending INR 5,600 on onboarding and training alone.
Candidate’ Salary and Bonus/Incentive
After hiring a candidate, you provide him or her with a paycheck every month. The candidate knows how much he or she will get because it has been discussed at the time of hiring. But the salary isn’t the only thing you are giving your new employee. Some companies have a norm of paying PF, benefits, bonuses, medical insurance, employee relocation costs, incentives, and much more. There is one more thing that employers have to pay for their employees – that is tax. It costs employers 1.25 to 1.4 times higher than the base salary of the candidate if you add basic salary, bonus, tax, and other benefits.
Background verification and reference checks
When you decide to hire a candidate, it is recommended to do background verification before sending them an offer letter. Doing a verification or reference check can cost you somewhere around $5 to $80 per candidate. If you hire HR outsourcing services, you will not have to undertake these tasks or bear their costs. Companies specializing in recruitment, contract staffing, and HR services are experts in doing background verification. They charge you based on candidate placement and not for conducting reference checks. It is a wise decision to hire an HR outsourcing services provider if you want to save some money on hiring employees.
It is important to note that the cost of hiring a productive, good employee is less than a bad hire. You can even determine the cost and impact of bad hiring. In a recent survey, it was found that the cost of a bad hire is between $25,000-50,000. The main causes of making a bad decision in hiring a candidate are insufficient talent team, less time, and less experience. That’s why outsourcing your HR process including hiring, screening, background verification, payroll, and other HR administrative works can help you save time, money, and efforts.
If you want to find quality candidates, spend less time on hiring, and save more money on per candidate, contact Perito. We provide HR outsourcing services to companies of all sizes and industries. Our experienced recruiters work with you closely to help you hire the best candidates in less time and lower cost, making your investment worthwhile.