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How Much Do You Spend on Hiring Costs?
We know that it’s going to cost money to hire a new employee. That’s a given. But what about when that new employee doesn’t work out?
Turnover & Employee Retention
The costs of turnover for workers can be upwards of 30% of a person’s annual salary, on average. One study revealed that for some very highly skilled or complex positions, turnover costs can reach as high as 213% of that person’s annual salary. Two-hundred and thirteen percent! Even positions earning less than 50k per year cost 20% in turnover, while those less than 30k per year, which make up nearly half of the U.S. workforce, can cost around 16%.
It’s no surprise then how much of a concern retaining talent can be for businesses. One study done by the Saratoga Institute found that of their 800 respondents representing 20 different industries, only 35% have specific turnover reduction plans in place, which means well more than half of their survey population have no turnover reduction policies in place to work toward retaining their employees.
Measuring Job Fit
Assessing people for job fit includes more than just measuring skills and experience. It requires identifying whether the candidate has the right attitude and aptitude for the position. You must address also if the candidate will fit into the team’s culture and be able to thrive in the current working environment. The best way to do this? Assessment testing. Another study reveals that assessment testing is effective in reducing turnover due to the predictive nature these tools have for measuring various components of potential and actual on-the-job performance.
We went ahead and assessed some of the most common costs an organization can expect to face when kicking off a new hire campaign initially. Here’s what we found:
We estimated that typically one or two employees from an organization or HR department are involved in the hiring process. On average, we estimated the salary of these employees at $22 per hour and the time they would invest in the process of creating and posting job ads, screening resumes, conducting interviews and reference checks, and onboarding and training a new employee would be anywhere from 1-2 hours per week for the administrative tasks and up to 40 or more hours per week for training. This estimate, of course, is based on a strict 30-day time to fill period. As you can imagine, the costs associated with hiring significantly increase when the time to fill is higher, exceeding 30 days into 40, 60, or even 90 days.
Other costs include taxes that an employer can expect to pay when hiring someone new to their payroll and the average overall monthly cost to hire and employ someone new for one month. The total tax rate figures out to about 18% when added together, so someone with a $60k annual salary will cost approximately $5446.15 per month, or an additional $111.54 per week on top of this person’s regular salary, strictly due to taxes and onboarding costs alone.
So Hire Right the First Time
Again, costs associated with hiring are a given. Imagine though, that you hired a new employee and after 6 months of paying this person’s salary, taxes, and investing yours and other employee’s time and money into this new hire, they quit, underperform or otherwise don’t work out. All that investment quickly becomes wasted costs. Poof, gone! Like throwing it out the window just to watch it blow away.
One of the most powerful ways to avoid a bad hire in the first place is through the use of pre-employment assessments that measure your candidate’s competency, personality, attitude, and intelligence. You can’t always be perfect, but you can come pretty close with pre-hire assessments.
How Much Are You Spending?
Check out our infographic for more insight into how these hiring costs are broken down. We’ve also included our interactive “Cost Per Hire Guide” to help you visually understand just how much investment you make to hire someone new, and how costly hiring can be when you experience high turnover. You can replace the fields with your own estimates to determine what your costs per hire might be when you decide to start a recruiting or hiring campaign.
If you’re strapped with high turnover rates or mishires, give us a call to discuss how implementing the best hiring practices and using assessments in your process can dramatically reduce your total costs and turnover.
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