Labor is typically a company’s highest cost. Calculating your cost per hire can help you make smart hiring decisions. But onboarding costs shouldn’t be left out of the equation. Understanding how much it costs to recruit and onboard a new employee offers a better understanding of the real cost associated with new hires.
Costs Associated with Hiring
There are two routes to take when hiring: either employ outside recruiting and hiring help or take on the task internally.
Hiring Outside Help
Hiring an outside recruiter or headhunter means less work internally to acquire new talent. But paying others to shoulder the task can cost you big time. Recruiting fees for external companies can cost between 15% and 25% of the employee’s annual salary. If your incoming employee’s annual salary is $50,000, your cost for this service could be $12,500. That staggering amount leads more companies to rely on their HR department to recruit new employees instead.
Using Your Internal Team
While using your internal team is much more economical, it is still costly. It is estimated that it costs about $4,000 to hire a new employee. Considering everything involved in the hiring process, it’s not difficult to understand how hiring costs can quickly add up.
Writing a detailed job description.
Writing a great job description takes some time because it needs to contain all the necessary information about the position. It should include a position overview, key duties and responsibilities, tools and skills necessary, physical demands, qualifications, scheduling requirements and levels of authority. Once you have a description crafted, it then needs to be reworked before being posted. A job posting needs an attention-grabbing headline and highlights your company culture. In total, this can take hours of work for an HR recruiter.
Posting the job description to a job board.
Pricing models for job boards vary. According to research by Glassdoor, Indeed offers a pay-per-click pricing model from $0.10 to $5 per click. Monster starts at $249 a month for one post. CareerBuilder offers a pay-as-you-go model for $375 a month. LinkedIn’s pay model works by setting a daily average budget: the more you spend, the more views you’ll receive. If you need to post one job across multiple boards, it will likely cost over $500.
Attending a job fair.
Aside from the work hours involved in staffing a booth at a job fair, many offer advertising for additional fees. Employers spend more to make sure their business is well-promoted. These fees are anywhere from $50 to $250 or even $2,000.
Doing a background check.
Depending on the type of check you’re running, background checks can cost anywhere from $20 to $100 per hire.
Once you figure out how much each of these steps costs you on average, you can calculate your cost per hire. Cost per hire takes the total costs spent on recruiting, like hours worked, posting to job boards, attending job fairs and background checks, and divides it by the number of hires made from those efforts. Cost per hire metrics allow you to estimate the average amount spent on hiring a new employee. This data is valuable when developing hiring budgets and plans.
Costs Associated with Onboarding
Once you’ve figured your cost per hire, the next step is calculating onboarding costs. The onboarding process takes six, nine or even 12 months and includes basic introductions to the job but also a full integration into the company.
The amount of time current employees must spend training and getting new hires up-to-speed comprises most onboarding costs. But there are other, hidden costs you might not have considered.
We’re not talking about the actual paper and ink, but rather the administrative costs attached to completing the required new employee paperwork (think W-4s, I-9 employee eligibility verification forms, state tax withholding forms, direct deposit forms, E-Verify forms, benefits enrollment and employee handbooks). Glassdoor estimates it takes about 10 hours of administrative work to get it all done. If your recruiter makes $25 an hour, this part of the onboarding process equals $250 per employee.
Not only does it cost money to train your new employees, but you must also consider the hours spent by managers and team members assisting in the training. According to ADP’s 2018 Training Industry Report, it costs about $986 to train each new employee. While this number varies by the size of your organization, training costs are highest for small companies at $1,096 per employee, while large companies are next at $1,046 and midsized companies typically spend around $868.
Tools and software costs.
Every new employee needs a certain amount of equipment or gear, such as laptops, headsets, software credentials, key fobs, ergonomic chairs, monitors, parking permits and branded clothing. All these items cost money, even if they’re necessary for work. Glassdoor suggests keeping these costs low by tracking every item handed out to new employees. Use an inventory system for hardware and equipment. Don’t forget any new licenses for software.
Calculating your onboarding costs is similar to calculating your cost per hire. You add up all the costs, including man hours, required to onboard new employees and divide the amount by the number of employees you’ve onboarded this year.
Why Onboarding is Important
Even though an effective onboarding process may take months, doing it right is worth the money. Investing in a new hire only to see them quit months later is a waste of your resources. According to Glassdoor, research shows an intentional and structured onboarding process helps to stave off early turnover.
Providing a strong onboarding experience is important. A great onboarding process forges a connection between your new employee and your company from day one. Successful onboarding:
- Introduces your new employees to their roles, your company’s mission, goals, processes and culture.
- Engages employees from the first day, creating a workforce that’s connected and invested in your company’s success.
- Keeps retention rates high and reduces turnover costs.
How to Save on Hiring and Onboarding Costs
Many of the costs associated with hiring and onboarding new employees come from the amount of time it requires of your staff. When you automate some of these steps, the job becomes much more manageable.
Use an ATS
An Applicant Tracking System (ATS) can automate many of the time-consuming processes involved in the hiring process, like automatically posting job descriptions to multiple job boards, and also help you source candidates, reducing recruitment costs. An ATS tracks every applicant who applied for a position with your company. That information—name, state, zip code, email, resume, etc.—all gets stored in a candidate database that can be viewed, reviewed and searched at any time. Starting your search in your system saves time, money and builds on the relationship that already exists with past candidates.
Use Onboarding Software
HR software, with a dedicated onboarding module, can streamline the following workflows with automated efficiencies built in:
- Send communications to new hires with helpful information including logins, schedules and training. Send state and federal forms and an employee handbook for review and digital signature even before workers start their first day.
- Create a self-service hub for your new hire to access with all helpful information easily available. Integrate with any internal/external technology including other HR automated solutions, payroll, and ERP systems to share data instantly.
- HR administrators are alerted of new employee actions, allowing them to approve and move the person forward in the process.
- Store all important documents in a secure, cloud-based system, giving employers the ability to access them anytime.
- Set up ongoing training and development for the new employee to become more accustomed to their role more quickly.
A great onboarding process is a must, and not providing one because of the costs involved will only cost you more down the road. With HR software’s ability to automate some of the most time-consuming processes, investing in one will help reduce your future hiring and onboarding costs.
Arcoro’s Onboarding solution makes a great first impression and ensures new employees are ready before day one with a smooth, stress-free onboarding system. Our 100% paperless, cloud-based Onboarding module streamlines the process and eliminates data input errors. Its easy-to-use features benefit both managers and employees.