I spend a lot of time talking to people about the real cost of a new hire.  Often times I start by pointing out the obvious “hard costs”:  advertising costs, background checking, interviewing.  But beyond these quantifiable costs there are many other “soft” costs that are regularly overlooked.  All of these things take time…and time has a cost.  In today’s market employers are now scrutinizing the costs associated with hiring new employees.  This is a smart move. “Many human resource professionals assume the cost of hiring is free,” according to professional section policy council chairman Julian Joy, CSP, of Joy Partners LLC. But here is an example that may have HR professionals reconsidering their concerns.

“When you take this example to the human resource desk, you can put things in perspective: Recently, a company was looking to hire a senior client services associate with a salary of $40,000. Here is a breakdown of how that company’s time was spent:

  • Developing a job description: three hours
  • Placing calls to people within the staff members’ professional networks in search of a suitable candidate: five hours
  • Posting the position internally and on the company Web site: 20 minutes
  • Responding to the 50 résumés received and conducting 10 phone interviews: five hours
  • Sorting résumés into various skill categories: three hours
  • Inputting résumés into the company’s database: two hours

“Although the company was strategic in its search, they spent nearly 20 hours and did not find a suitable candidate. As a result, the company had to turn its search outside the organization, which required spending money on ads, reviewing more résumés, and conducting phone and face-to-face interviews. To determine the true cost of hiring this new staff member, you add up all the activities attributed to the hiring process, including the compensation of those involved. In this case, the total was about $14,000, or 35% of the starting salary,” Joy reveals.

According another source, an article by Will Helmlinger of the The Resource Development Group, “the cost to replace one Customer Service Representative earning $18,000 annually is nearly $58,000”. A study by the Institute for Research on Labor and Employment, University of California, Berkeley evaluating the effects of the US Family Medical Leave Act found that “turnover costs for a manager average 150% of salary, including tangible costs of hiring new workers and relocation, and intangible costs such as the new worker’s inefficiency and lost productivity while the job is vacant.” (The same study found that the cost of a temporary replacement is only 39%!”

“How can this be” you ask? Well, the total cost is so high because there are just so many costs included. Some, like paying off accrued vacation time or the cost of a newspaper or online ad, are obvious. Some others, often disregarded, include lost productivity, new employee training, administrative on boarding tasks. Also to be considered are:

  • Time to review resumes
  • Time to set up interviews
  • Time to actually interview candidates
  • Time to respond to applicants not considered, wishing them well
  • Interview expenses for candidates
  • Possible travel expenses for new hire or internal hiring manager
  • Possible relocation expenses for new hire
  • Additional bookkeeping; payroll, benefits enrollment, 401k, etc.
  • Additional record keeping for federal, state and local government agencies
  • Increased unemployment insurance costs
  • Intellectual property lost – your former employee has lots of information stored in their head
  • Corporate history lost – the new employee has zero history with your company

And after all of that, you may make an offer and have your perfect prospect decline your proposition!

You may want to read this excellent article by Will Helmlinger titled “How Much Does Employee Turnover Really Cost?

For information about avoiding the real and hidden costs of employee turnover and to better understand how MESI can help your business’s bottom line, contact me at jchagnon@masemp.com or call me at 603-358-1000.