Hiring Costs at Every Level

FletcherAdvertising, Candidate Selection Process Strategy, News, Recruiting, Salary

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Everyone wants to know the cost of hiring and the cost of a bad hire in particular.

The exact hiring costs depend on many factors. But researchers have looked at many companies to get an overall picture of the average costs of hiring. It is thought that the average cost of a new hire ranges from .5 to 2 times their annual salary. Bad hires incur even more costs in a short time period.

Estimates for employee replacement vary greatly. Different researchers consider different costs. The huge variety of jobs and the vastly different levels of training and expertise required also affect estimates.

Most research suggests the cost of hiring an entry-level employee is usually about 20% of their salary. Even an employee making near minimum wage can lead to turnover costs of about $3,500.

The cost of a mid-level bad hire averages $60,000, or 1-1.5 times the salary, but this depends on the exact salary and responsibility of the position.

Turnover costs of mid-level positions earning less than $75,000 are about 20% of salary, but this figure generally fails to account for opportunity cost, lost work due to vacant positions, and other serious expenses.

Executive level hiring comes at enormous cost. The Center for American Progress has found a cost of over 200% of salary.

The 8 Significant Hiring Costs:

Advertising

for a single listing vary by job board. Monster, for example, charges $375 for thirty days, while Simply Hired costs just $99 and LinkedIn charges nearly $500. Think about your audience and review each site’s offerings. Many sites offer a discount for multiple listings. If you post on three job boards, you can expect to spend $800-$1,500 a month, plus the cost of other ads.

Recruiters

Consider an in-house recruiter making the average of about $51,000. A month of their time represents $4,250, not to mention other expenses. Consider hiring an outsider recruiter for your hiring needs rather than keeping an in-house on the payroll. You’ll save money and perhaps gain some additional hiring tools or expertise through the contract.

Your Time

The cost of hiring managers’ time isn’t measured in hours alone. Your productivity will decrease, even during time not focused on hiring. On average, hiring managers spend about 30 hours on resumes and interviews.

Training

Investopedia reports that the average company spends about $1,200 on training employees each year. In addition, training has a time and productivity cost. The average employee spends more than 30 hours in training each year. Plus, you must account for the salaries and time of those who assist the training. Training is important and helps ensure future productivity, but it takes time to recoup your costs – about six months.

Lost Work and Underperformers

When a position is filled by an unsatisfactory employee or is vacant, it costs you. Clients may be dissatisfied, revenue and productivity are lost, and other employees’ stress levels increase. The more important the position is, the more opportunity cost there is for bad hires and vacancies.

Pre-employment Assessment Testing

Pre-employment assessment tests can save you from making the wrong hire. However, you will have to pay the cost of the testing and evaluation. Choosing tests designed with great expertise will likely cost more, but are a greater investment.

Insurance

Insurance will make up at least 15% of your total hiring cost for a new employee. Unemployment insurance, and cobra will cost you money, especially if you have high attrition rates. Don’t overlook this factor when estimating your costs.

Legal Costs

Employees who resign or are terminated will potentially look for ways to be compensated for perceived wrongs. These legal costs can be in the ten’s of thousands to settle. To fight even frivolous claims it could cost you hundreds of thousands. Be sure to have all your legal documentation to fight frivolous wage, unemployment and other legal claims. Also find ways to help these employees terminate themselves by setting clear performance expectations, those who can meet those expectations will often let themselves go peacefully.

Awareness of the true cost of a bad hire can inspire you to take improving your hiring process more seriously.