Cost To Hire A New Employee (HR KPIs And Metrics)

Every time a company makes a decision to hire a new employee it should look at the total cost. By focusing on the direct cost only or focusing on the salary range in many cases poor decisions are made.

This is especially true for many professionals like legal, IT, sales, marketing, etc.

As an example, in many cases professional who makes only 50k by leaving a company can costs the business as much as 130k in total cost of replacing that employee with a new hire.

So how do you go about calculating the total costs of hiring a new employee?

  1. CASES BY CASE HR ANALYSIS – It is important to approach different levels in your organization, different skill sets and professions in a different way because the costs (as well as the potential risks and losses) will be different.
  2. INDIRECT COSTS – Bottomline is that any time an individual leaves your company there is a certain level of cost for your business to incur. Besides the wages + benefits, there are always many additional costs, for example recruiting costs, costs and time allocated to developing the new position (in many cases the new position will have slightly different job requirements), the tools, coaching and training required for the new hire and you might even incur travel costs for interviews as well as moving expenses.
  3. TRANSITION COSTS – Companies accumulate substantial costs throughout the process of hiring new workforce because establishing an easy transition is critical. As a result, successful companies keep track of their cost per hire so they can create new methods and tactics as well as improve their existing ones in order to manage those costs and plan for higher employee retention.
  4. EMPLOYEE RESIGNATION – Fact is that HR costs will begin to accumulate as soon as a member of your staff makes announcement to leave. It typically starts with preparing new job description, advertising and exit interviews. When this is about very important personnel for the organization – the employee resignation often means preparing a hiring plan to look for an individual having similar competencies who can start working as soon as possible.
  5. NEW JOB DESCRIPTION – Hiring expenses begin with planning a job description which will effectively demonstrate the job responsibilities and the general duties. If a worker has been doing the exact same function for any long time period, duties and assignments might change, consequently, just before promoting the job openings, analysis of the job description is essential to make sure that extra obligations and duties will be a part of the new job description.
  6. RECRUITMENT COSTS – Advertising and marketing expenditures vary based on the job requirements. Specialized and focused hiring approach which will appeal to a unique range of job candidates will cost more. For example, advertising the position for industry-specific experienced professionals can easily add to your overall recruitment costs. Whenever you employ recruiters to fill a high-level position, be prepared to spend a significant portion of the salary for locating your ideal applicant. In addition interviewing and pre-employment screening will raise the expenses significantly.
  7. ON THE JOB TRAINING – There is always a certain period of time a new employee needs to spend on understanding your company specific policies, processes, structure and culture. This adjustment period for the new employee orientation and training should be added towards the total cost-per-hire. In many cases, it could actually take a few months for the new employee to really get to her real potential.
  8. PROCESSING COSTS – These are generally easy to determine because all of them are direct costs and you can associate real numbers to each of them. You should plan the costs for processing related to taxes, insurance, moving expenses, travel costs, employee benefits and other similar direct expenses.

As a conclusion in most cases firing or losing an employee costs a lot of money for your organization. Employee retention strategy and effective training and transition tactics can make a difference for your company. Before you make any organizational changes make sure you calculate both the direct and indirect costs and develop the right HR strategy.