- The average cost of hiring an employee is about $4,000, but this varies by role.
- Hiring a new employee involves many resources in the recruitment, interview, onboarding and training phases.
- There are many ways to reduce the cost of hiring an employee, but the best resource is to improve employee retention and keep turnover down.
- This article is for business owners, CEOs, hiring managers, and human resources managers looking to hire new employees.
According to a study by Glassdoor, the average cost of hiring an employee is about $4,000. However, various factors can affect that number, such as the size and location of your business, the role you are hiring for, and the industry in which you operate.
Hiring an employee is one of the most important investments any business can make, and it is not a process that should be rushed. But if you know what to look for at the right stage of the recruitment process and how to find the right kind of help, you can streamline all of your recruitment and retention efforts with ease – for the lowest possible cost.
Let's take a look at the costs any organization can expect during the hiring process.
Typical cost of hiring employees
Here is a short list of factors that can affect the cost of hiring, recruiting, and onboarding a new employee:
- HR team
- external recruiter
- job posting
- candidate screening
- background checks
- Corporate Equipment and Credentials
A human resources team is a vital asset to any recruitment efforts. A qualified HR specialist can handle a variety of responsibilities, including drafting corporate policies, setting salary ranges, writing job descriptions, and training employees.
While a dedicated HR representative can help recruit and retain top talent, it comes at a cost. The average salary of a human resources manager ranges from $100,000 to $140,000 per year, and this is before benefits and the cost of onboarding.
Tip: Many small businesses cannot manage their employees without a dedicated human resources professional. Consider using top HR software or contracting with an HR outsourcing service to manage the needs of your small business before hiring an internal HR team.
For small businesses without an HR department, external recruiters are a common resource for facilitating hiring. An external recruiter or recruiting agency often has a talent pool of qualified and experienced candidates. And if that talent pool isn't what you're looking for, an outside recruiter has an array of tools and resources to help you hone the right employees.
However, recruitment agencies have several pricing structures that can quickly add up regardless of the demand you fill out. Whether the fee is a percentage of a role's annual salary, retainer-based, or simply a uniform rate, it can significantly increase the overall cost of finding and joining a new team member.
Tip: Learn how to stay ahead of the curve in recruiting and hiring in the digital age with these trendy recruiting trends.
Writing an attractive job description is no small task, and it can make the difference between attracting a top candidate or someone else in need of the job. A job description that attracts all the right types of people takes time, skill, and experience to produce. Once your internal teams have approved the description, it's time to post it on multiple job boards.
There are many free options for posting a new opportunity on platforms like LinkedIn and ZipRecruiter, but the free or trial versions offer only a small selection of features to help you find the right ones. To get the most out of job boards, you'll usually need a paid service. For example, ZipRecruiter offers a paid subscription starting at $299 per month, while LinkedIn offers a pay-per-click model to give you more control over your budget.
Once you have successfully secured a good selection of applications, you now face the most time consuming part of the recruitment process, starting with the screening of the candidate. It can take some time to sort through resumes to find a potential employee. Once you've found qualified applicants with the right experience and results, you can schedule an initial screening call to ensure that applicants have all the soft skills needed to interact with the hiring manager and team.
After you've found the right candidate, it's time to do a background check on that new hire. A background check verifies basic information like education and work experience, but more importantly, it also checks past identities or any criminal history to make sure your new hire is as good as they seem. Huh. [Read related article: How to Choose the Right Background Check Service]
One of the more obvious costs associated with hiring is making sure your employee is receiving a fair salary. However, any benefits you provide to your employees are added to the total expense. Benefits such as health insurance, retirement planning and employee development initiatives affect your budget, but the total amount will depend on the level of perks you offer.
FYI: A competitive compensation plan is one of the most effective ways to keep employees satisfied and focused. It's a simple formula to offer all the right perks, benefits and pay. To learn more, read our step-by-step compensation planning guide.
According to a report in Training Magazine, companies spend an average of 46.7 hours training an employee, and an additional $986 in training expenses. But those expenses are worth it, because the training you provide quickly accelerates new employees and prepares them for the important contributions that help keep your business moving forward.
Corporate Equipment and Credentials
Every employee needs basic equipment, such as a desk, computer and telephone, to be successful. This equipment is an additional expense of the onboarding process. In addition, your IT managers will need to install corporate software or create employee accounts to ensure compliance with security policies.
Creating an effective referral program is not easy, but high quality candidates make it a great recruitment tool for many organizations. In fact, according to a study by employee referral service ERIN, a referral is four times more likely than hiring other candidates. By relying on your network of employees, you create a great recruitment tool for finding top-tier candidates, but the ultimate expense is entirely dependent on the incentives offered, along with any development costs for the program.
Now that you've invested in an employee, how long should you expect to wait before they make a meaningful contribution? According to a survey of 210 CEOs conducted by Harvard Business School, business owners expect an employee to reach the break-even point six months into the job. After six months, an employee should have adequate training and institutional knowledge to add value to the organisation.
how to reduce hiring cost
You can keep your hiring costs down and cover expenses as quickly as possible by following these tips:
- Create an internal referral program.
- Get professional help.
- Build an effective career portal.
- Recruitment on social media.
- Curate a talent pool.
- Conduct online interview.
- Improve employee retention.
1. Build an internal referral program.
Starting a referral program within a business is not an easy task, but it is one that is well worth the effort. Because your trusted workforce is able to recommend people they trust, it helps you find reliable resources a little faster than a regular job board. And because internal referrals can help you find the right candidates in a fraction of the time, the associated cost is very low. Instead of paying $300 a month for the amount of time it takes to find qualified applicants, organizations incentivize their employees for specialized, in-demand positions with bonuses ranging from $50 for junior roles to $7,000 .
Tip: Learn about best practices and guidelines for setting up a referral program for your company with our guide on how to create a great employee referral program.
2. Seek professional help.
Depending on how many roles you're recruiting for, you may want to investigate a Professional Employer Organization (PEO), especially if it's a struggle to grow your workforce as your business grows. A PEO is typically equipped with specialized headhunters, HR managers and dedicated HR software to help track candidates, manage interviews, and onboard new employees.
FYI: You can learn about some of the top PEOs in our Oasis review and our Justworks review. Each PEO offers different levels of service and provides tailored methods for recruiting talent. Check out our guide to learn more about the benefits of PEO.
3. Build an effective career portal.
Even with a successful referral program and professional help, it never hurts to go back to basics. And with a career portal hosted on your corporate site, you get a home base to post all your open positions, as well as a place to showcase the corporate lifestyle and values to make your business something you want to do. There is also territory, which people try to be a part of. Many job boards require you to link to their corporate portals to apply for any position, so posting an attractive job description on their official site is always a good move, even if you haven't tried any other recruitment. or have initiated recruitment efforts.
4. Recruitment on Social Media.
Sometimes eliminating the middleman in recruitment is effective. With a healthy social media presence, you can promote open positions on your own, without using a job board or recruitment service. However, the result is not guaranteed. Since social media isn't equipped with all of the recruiting and recruiting tools you find with a PEO, they don't have the same vetting services for assessing job applicants. But those responding to your corporate recruiting posts on social media are already engaged in your company's activity, which could lead to a passionate new employee familiar with your values.
Tip: Social media can also give you some insight into a potential employee's personality and professionalism, making it a public and effective way of screening for talent. Learn how to screen job candidates on social media before their interview.
5. Curate a talent pool.
There are usually many capable and exciting possibilities when you hire a new employee, but you can't hire them all. When this happens, it is common for employers to isolate candidates for future opportunities. With a talent pool of past interviewers who made a positive impression but didn't make the final cut, you can start with a roster of qualified candidates you've already screened. This cuts down on the duration of the recruitment process and gives you a head start on identifying the right person for the job.
6. Improving employee retention.
The most effective thing any organization can do to keep hiring costs down is to prevent turnover in the first place. Employee Benefits News reports that it can cost up to 33% of an employee's salary to replace them, and the loss goes beyond the financial aspect. When an employee leaves, they take with them a wealth of knowledge that they have acquired during their tenure, which can be a huge loss for the company. [Read related article: How to Create a Stress-Free Work Environment]
A toxic work environment, questionable management, exploitative business practices and low compensation can all lead to the departure of a valuable team member. To keep your team satisfied and contributing significantly, you need a team of professionals who are trained and up-to-date with all business policies and practices. Creating a sustainable work environment and policies to support your entire team requires collaboration between your business leadership and the human resources department.