The True Cost of Hiring an Employee in 2018 (and How to Reduce It)
When running a business, it takes money to make money. You make decisions every day on where to invest your hard-earned cash for the betterment of your company. One of the most important investments is that in new people.
If you’ve just set out on the journey to hire new employees, you may face some hard truths. Hiring is extremely complex and it takes a lot of skills, patience, time and money to find the right person to fill a position. Today we’re concerned with the last item on this list – what is the cost of hiring an employee in 2018?
There are many factors at play and it takes a lot of calculation to figure out what it costs to hire an employee for a specific company. However, most organizations have to go through a similar process to hire new talent.
Here is a breakdown of some of the most common hiring costs across industries – so you can get a pretty good idea of how much hiring costs. To round it all off, we have a solution to significantly reduce hiring costs and improve your bottom line.
Most common hiring costs
1. External hiring team
For many companies, having a dedicated HR team simply does not make sense. Startups are booming across the world, and teams of half a dozen people can successfully run a business. There are two things to note:
- It’s not necessary to have a hiring expert in a team this small.
- With only several people on board, every new hire is crucial for the team’s success.
In situations like these, it’s best to get help from the outside. There are numerous HR agencies happy to help you out in filling a position. Trouble is, the service does not come cheap.
Small business owners spend around 40% of their working hours on tasks that do not generate income, such as hiring.
Many agencies work on a model where they are paid for performance, i.e. they only get paid if they successfully recruit a new candidate. The price for such a service is anywhere from 15 to 25% of the employee’s annual salary, with more senior positions on the higher end of the scale. In one research, a number of companies disclosed their total spend on recruiting fees. It adds up to over $16,000 per year – and that’s per single placement. Ouch.
2. Internal HR team
Once your company gets big enough to warrant its own hiring processes, it may be time to get a dedicated HR person or team onboard. However, that too comes at a price.
If you want to have the bare minimum, you should have at least one HR manager on your team. Salaries differ across the board, but general estimates are anywhere from $91,000 to $120,000 per year, with healthcare on the lower end and company management on the higher end of the scale. The HR expert does everything from setting up the job ad, to putting it out on job boards, screening and sourcing the candidates, assessing and interviewing them, all the way to making an offer.
Of course, the HR manager and team have a lot more on their plate than just hiring. However, it only makes sense to have an internal HR team when their wages are less than the money you would lose on doing HR-related tasks.
Internal HR is more cost effective than outsourcing – but only if you’re big enough.
3. Career events
It’s not all about online – sometimes you get to go out there and meet prospective new employees in person. There are numerous career fairs and recruitment events to attend, where employers can search for new staff members, hand out materials, ask and answer relevant questions, and in general – put their name out there.
For example, college career fairs are especially popular in the United States, where 75% of all employers visit these types of events. It’s no wonder why – 57% of all hires are fresh college graduates. As mentioned by Glassdoor, the cost of participating in a single event like this ranges from $125-225. However, this does not include other costs such as accommodation, travel, marketing materials and so on. Visiting just a couple of career fairs per year can end up a costly endeavor.
4. Job boards fees
When you’ve come up with a perfect job ad, it’s time to put it out there for the candidates to see. However, placing a job ad does not come for free, and it adds up to the total cost of hiring an employee.
For example, LinkedIn is one of the hottest places to look for a job at the moment. Up until a while ago, they had a fixed price plan of $495 for 30 days for one position. Last year, it was changed to a pay-per-click model. Currently, it will set you back $1.20 to $1.50 per a single click on your job ad, depending on job title, location and competition. As your budget decreases, your ad gets pushed down on the list of open positions.
Another place most job-seekers turn to is Monster. It still has a more traditional payment model of $375 for 60 days and $395 for 90 days for one position. You can get a discount for multiple positions at once.
Dice is another hiring mainstay, and it’s priced at $395 for one job post for 30 days, with significant discounts for multiple openings.
ZipRecruiter is one of the most popular boards out there, and its pricing is slightly lower. It starts at $249 for one month, for 3 positions. However, it only allows one user per account. If you want to be able to download resumes too, the price bumps up to $349 monthly.
As you can see just from a few examples, it costs around $300 per month to advertise a single job position on one of the major job boards out there, for 30 days. Sadly, the overall average time to hire someone new is 42 days, so you will end up renewing your ad.
5. Background checks
Once you’ve found someone you want to hire, it’s safe practice to learn more about them before making an offer. This is why it’s useful to run background checks for prospective employees.
You can check for anything from verifying their education, previous employers, to criminal databases. One of these checks can cost as little as $5 and as much as $80 per single applicant, depending on how detailed you want to go.
6. Onboarding and training
When you hire someone new, they most likely won’t be fully productive their first day of work. In fact, it can take up a few months for them to get comfortable in their new role.
As confirmed by research, it will take 8 to 26 weeks for an employee to achieve full productivity. Before this time runs out, you are essentially losing money – the new employee costs more than they are earning for the company. After this period, they provide positive return on investment for your company, i.e. this is the break-even point.
The more complex the job, the longer it takes to get familiar. In other words, a new sales representative will pay off sooner than a new senior manager. Of course, this number will be influenced by the hire’s previous role as well. The more familiar they are with the line of work, the more natural the transition, and shorter the adaptation period.
So, how does this translate to cold, hard cash? It turns out that an average company loses anywhere between 1% and 2.5% of their total revenue on the time it takes to bring a new hire up to speed.
An average company loses anywhere between 1% and 2.5% of their total revenue on the time it takes to bring a new hire up to speed.
In an ideal world, you’d just put your new employee behind their desk and leave them alone to figure things out. Unfortunately, we’re not all that smart, and even the best hires need a helping hand to get started.
Training begins the moment a new employee enters your company and ends once they’re fully capable of doing work on their own. This time period depends on many factors, primarily on the type of position. However, one study suggests that employees spend around 32 hours annually on training. Although the study is fairly dated (2007), the data suggests that this means $1,200 lost every year on training, for a single employee. In 2018 money, that’s around $1,500.
7. Careers page
Probably the easiest element to pick off the list, but also one of the most important. It is absolutely crucial to have a Careers page on your website. Whether you have any openings or not – it should be there and you should keep it up to date. It may need some redesigning here and there, but this work can be outsourced. Otherwise, simply assign the work to an in-house designer and allocate the costs to their salary.
8. Salary + extras
When you’ve set out to hire a new employee and offer them a certain amount of money, they know exactly how much they’re getting. The paycheck comes in every month with the net amount of money, and the employee can rest at ease. However, if you’re on the other end of the employing process, things are anything but simple.
Taxes are no joke, and they vary greatly from one city to another, let alone between countries. Let’s take the United States for an example, and a famous research done by MIT. In an example where the basic salary is $50,000 per year, the employer’s costs are anywhere from 1.25 to 1.4 times higher than the base. In this specific case, it means that for the employee to receive $50,000, the employer has to pay from $62,500 to $70,000 per year. And this is just calculating in the basics such as taxes and benefits, without any extras such as gym memberships, additional seminars and training and so on.
For the employee to receive $50,000, the employer has to pay from $62,500 to $70,000 per year.
Moreover, your employees won’t expect their salary to stay the same either. As time goes by, salaries should increase, and this makes a dent in your budget as well. One research states that the average increase in salary per year is 2.7%.
The total cost of hiring an employee
Unfortunately, it’s very difficult to pinpoint a precise amount of money it takes to hire a new employee. However, there are some general guidelines to make an educated guess.
- As stated in a study by the National Association of Colleges and Employers, hiring an employee in a company with 0-500 people costs an average of $7,645.
- Another study by the Society for Human Resource Management states that the average cost to hire an employee is $4,129, with around 42 days to fill a position.
- According to Glassdoor, the average company in the United States spends about $4,000 to hire a new employee, taking up to 52 days to fill a position.
If you’re replacing someone instead of filling a new position, stakes get even higher. Another research by SHRM states that it takes up to 50-60% of an employee’s annual salary to find a direct replacement. Turnover can be quite costly, summing up to a total of 90-200% of an employee’s annual salary.
How to decrease your hiring costs
What if we told you that you could save money on one of the most important parts of hiring a new employee – the sourcing? This is exactly what we’ve been doing for Toggl, our sister company. We helped Toggl hire 68 people, with more than 1,500 applicants per single position. The best part – we were able to save 22 hours per single candidate, on sourcing, screening and shortlisting.
No matter how much you pay your HR, 22 work hours add up to a nice lump of money – especially if you hire for more positions. Let’s take the USA as an example yet again. The average hourly wage of an HR manager is $52.21. At a total of 1496 hours saved, Toggl has saved up more than $78,000 by using Hundred5 as part of their hiring process.
As another example, Schedugram recently hired a content marketing manager using Hundred5. In a couple of weeks, they got over 800 applicants for the position and they were able to narrow it down to the best 10 in just one hour. The process would have normally taken weeks.
Toggl has saved up more than 22 work hours per each job opening by using Hundred5 as part of their hiring process.
Hundred5 solves one of the biggest problems in hiring – the screening part. As you get hundreds to thousands of applications, you lose precious time at the very start. Instead of devoting your time to the best candidates for the job, you spend it on disqualifying.
If you feel that you could optimize your hiring process to save time and money, give Hundred5 a try. We will help you find better quality candidates, spending less of your time and money.
Reduce your hiring costs
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