How much does it cost to hire an employee?

Most employers fail to answer that question correctly.  In fact, most aren't even in the "ball park".  You are right if you say that a 'quality' hire is more important than the cost of that hire. If that was your answer, you are truly the exceptional employer! Read on either way...

No matter if you are a large or small employer, hiring costs make up a significant portion of your Operating Expenses.  If you use an agency, it's not uncommon to have to pay out 30 or 40% of the employees' first years' annual compensation package.  And that's a bargain!

Many companies are using the internet in combination with more traditional hiring methods.  Still, most are reporting standard response and success. 

Here are six costs that comprise the basic elements to calculate Cost per Hire:

    1.    Advertising

    2.    Agency and search firm fees

    3.    Referral bonuses paid to employees for recruiting new employees

    4.    Travel costs incurred by both recruiters and applicants

    5.    Relocation costs

    6.    Salary and benefits of your company's recruiter

These make up the greatest portion of hiring costs, but not the total.  You must take into consideration:

    7.    Testing expenses (technical, professional, psychological, drug)

    8.    Reference checking (credit, criminal, etc)

    9.    Bonding expenses

    10.  Administrative support costs to the hiring process (long distance,  correspondence/mailing, record keeping, etc.)

    11.  Overtime expense incurred by other workers while the vacancy remains     unfilled

    12.  Loss of sales or productivity due to turnover (loss of customer relations)

    13.  Training costs to bring new employee up-to-speed

Higher costs are incurred by companies seeking professionals in computers/info technology, pharmaceuticals/medical, and manufacturing. 

Common estimates are that it costs 40 to nearly 50% of the employees salary just to get them hired.  Total time to fill from both internal or external sources is now averaging 52 days! (Salaried-60 days, Hourly-43 days). Makes that 30 or 40% 'headhunter' fee look pretty good, doesn't it?

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