Cost of Hiring a New Employee [Calculated by Experts]

Cost of hiring a new employee calculated - Recruiteze

The cost of hiring a new employee is something that must not be overlooked and needs to be strategically calculated and planned.

As a recruiter, your whole job is about finding and grooming employees for other businesses. Unfortunately, most business owners, don’t really grasp the investment they are making when hiring a new employee, and this lack of knowledge hurts your career.

They may not understand how much you have to charge them, why you want to make the choices you do, or how to nurture the quality candidates you give them for maximum success on everyone’s part.

These realizations cannot be made without a proper understanding of the cost of hiring a new employee. It will also prevent you from making desperation hire and save even more resources. Therefore, in this text we will include everything that goes into the cost of hiring and training a new employee:

  1. The overall cost of hiring a new employee
  2. Recruiting
  3. Sourcing
  4. Training
  5. Compensation
  6. Accommodation
  7. Costs of unengaged workforce
  8. Formula

cost of hiring a new employee

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Overall Cost of Hiring a New Employee

This quote from the SHRM pdf on Employee Turnover describes it very well:

“Research suggests that direct replacement costs can reach as high as 50%-60% of an employee’s annual salary, with total costs associated with turnover ranging from 90% to 200% of annual salary.

Examples include turnover costs of $102,000 for a journeyman machinist, $133,000 for an HR manager at an automotive manufacturer, and $150,000 for an accounting professional.

If these estimates strike you as high, keep in mind that in addition to the obvious direct costs associated with turnover (such as accrued paid time off and replacement expenses), there are numerous other costs.”

Hiring costs

Of course, the costs vary depending on the role.

For employees making $30,000 a year or less, the cost of replacing them is 16% of their annual salary. For the next salary bracket, $50,000, it goes up to 19.7%, and for $75,000, it becomes 20.4%. That’s a bit alarming.

What is truly scary is the cost to clients who need more highly educated and specifically skilled workers with high salaries. High turnovers for these positions can reach more than 200% of the employee’s annual salary. That is not a typo. That’s equivalent to mistakenly paying three times for one item.

It is also difficult to pinpoint the cost of hiring an employee because there are so many indirect expenses. These costs are rarely obviously connected to hiring and definitely not tracked, but they hurt the company nonetheless.

Hiring costs (direct and indirect) include:

  • Advertising,
  • Event and agency fees,
  • Recruiting efforts or external services,
  • Drug screening, background checks, etc.
  • On-boarding/initial training,
  • Hours other employees spend interviewing and training the new employee,
  • Continual training,
  • Cost of medical coverage and other benefits,
  • Unfilled job duties/help while filling a position,
  • Lowered productivity of a new employee,
  • Dampened morale in high-turnover situations,
  • Poor customer service and workmanship in high-turnover situations.

Additional good read: Signs you’ve made a bad hire and what to do about it, without losing more.

Cost of Recruiting

Cost of Recruiting

Do you use recruiting software? If not, costs associated with the overall hiring process can be quite expensive. Manpower to go through paperwork, advertisements, reviewing resumes, and more can be extensive.

There are also other things to factor in as well:

  • Staffing agency fees
  • Interviewing time
  • Hiring assistant
  • Drug tests
  • Calling and talking with references
  • Background checks
  • Assessment testing

It’s possible that even with recruiting software to help with these tasks, you could be looking at around $2,000 per new hire. Without software, solution costs could be upwards of more than $3,000.

If you are curious, here you can read how to calculate the ROI of an applicant tracking system. You can also check our post on free applicant tracking systems in case you are really tight on budget.

Cost Of Sourcing

Average cost to hire and train a new employee

Whether the client recruits for themselves