How To Calculate An Accurate Cost Per Hire Formula for Your Business
The hiring process can be tricky and take up a lot of time, patience and money in order to find the right candidate to fill a position. How much does it actually cost to hire an employee? Calculating an accurate Cost Per Hire Formula can often be a determining factor for internal growth.
Small business owners spend around 40% of working hours on tasks, such as recruitment and hiring, that don’t generate any income for their company. While the average cost per hire depends on multiple factors, a study by the Society for Human Resource Management (SHRM) states that the average cost to hire an employee is $4,129. Here is a list of common variables that should be included in a business owner’s Cost Per Hire Formula.
Job Board Fees
Now that you have the perfect job ad, it’s time to get it out there for potential candidates to see — but placing job ads comes with a fee. Recruitment fees, such as running these job advertisements, add up and contribute to the total cost per hire formula.
Many job ads only run for 30 days, but the average time it takes to hire a new employee is 42 days — so another fee will need to be added to your hiring budget to renew an ad if you don’t fill the position within a month.
Background and Reference Checks
While it’s a safe and standard practice in multiple industries to run background checks on new employees, different types of checks can cost up to or more than $80 per applicant, which adds on to your total cost per hire.
Reference checks are another common practice in the hiring process. Reaching out to references and learning more about a candidate is time consuming, but is often essential in order to gain valuable insight into potential employees, their prior work history, skills and performance.
Background and reference checks don’t generate any income for a company, but can protect your business from a bad hire — which will cost you even more in the long run.
Onboarding and Training
The cost of training employees is an important aspect to take into consideration when calculating your business’s cost per hire formula. It can take anywhere from eight to 26 weeks for a new employee to reach full productivity in a new position. The more complex the position, the more time it takes to get acquainted — which means a higher cost of hiring in terms of onboarding and training.
A key role in calculating your business’s cost per hire formula? Payroll costs. These consist of all the fees incurred by a business to compensate its employees — including salary, hourly wages, taxes and calculating the average cost of employee benefits. Senior, management or executive roles will require higher compensation and benefits than junior hires. Taking into account the types of positions your business is looking to fulfill will help calculate your total cost per hire.
Employee retention is extremely important. Finding the right candidates for your open position and preventing a high turnover rate is key in saving yourself time and money by not having to go through the recruiting and hiring process all over again. If you’re constantly hiring and training new people, you can expect that to add up and increase the average cost of hiring a new employee.
How Can We Help?
Hire With Ease is here to help you in the early stages of the hiring process. We’re dedicated to helping your business find the top, best quality candidates for each position.
We set ourselves apart from other recruitment agencies from the very first consultation. We’re committed to taking the time to understand what makes your business special and aid you in finding the talent your business needs.
We evaluate candidates based on their skills, goals and how they’ll fit into your company’s culture. At the end of the day, our services will help decrease your hiring costs — saving you time, money and frustration.
If you want to find the right person to hire for your team, get in touch with our hiring professionals today!