When we talk about the cost of recruitment, the cost per hire is one obvious element. But the cost to the business is much wider than this, with many different factors making up the whole cost of recruitment. These include:
Cost of hiring
This comprises the actual spend for job adverts, psychometric tests, recruitment agency fees and other expenses, but also includes staff time (both for HR/ TA teams and recruiting managers), as well as the cost of any temporary staff to cover the vacancy.
Estimates for this cost can vary widely. CIPD estimates the average cost of filling a vacancy, including labour costs, is £6,125. For a manager role, these figures rise to £19,000.
However, that figure can be significantly higher for more senior roles, especially if recruitment is outsourced. Recruitment agencies can charge 20-30% of the salary, which for a role commanding a salary of £120,000 would equate to £24,000 to £36,000 simply on agency fees.
Cost of empty chair
Data suggests that the typical time to fill a role in the UK is 48 days in the UK and Ireland and 43 days in the US. This can vary widely though, depending on the seniority of the role, the skills required, local competition and the job market overall. Some roles can prove very hard to fill.
However, the time to hire can be much shorter than the time to fill. Recruiting managers may not immediately notify HR about vacancies. And at the other end of the hiring process, companies often need to wait for candidates to work out notice at their current employer. All of this can add a significant amount of time.
Throughout this time, the business will be losing revenue, either directly for an employee who is income-generating, or indirectly for roles in a support function, where other employees may need to step up and cover, which can impact everything from sick leave to employer brand perceptions.
This is an area that HR and management teams recognise. A recent survey showed that 14% of businesses have increased their focus on retaining talent. However, a certain level of turnover is inevitable and often healthy, so these costs cannot be minimised completely.
Cost of productivity for a new starter
While new employee gets up to speed, there will be a loss productivity vs the previous post-holder who knew the job well. Time and costs are incurred throughout the onboarding process, as managers bring employees up to speed about the role. This can take 1-2 months, which equates to a direct drop in income and profits over this time.
The time investment in onboarding will be worthwhile though, as ensuring a good process can help with retention rates. Research shows that as many as 43% of new hires leave their role within 90 days. This obviously escalates the costs of recruitment significantly – with lost time and resourcing for onboarding, not to mention incurring recruitment costs for a second time. Even worse, the cost of an empty chair may be even higher, as new recruits may be on a shorter notice period during their probationary period.
And it’s not only on the employee side where there are issues. New research shows that 57% of hires made in the last 12 months weren’t working out in some capacity and 25% weren’t working out at all. The top reasons were poor fit for the role (46%) and poor fit for the culture (44%).
Data shows that the cost of a poor hire at mid-manager level with a salary of £42,000 can cost a business more than £132,000 to resolve, so it’s essential to get the right person for the job.
Cost of lost knowledge and expertise
This is not often discussed, but when established or expert employees leave, the business loses their knowledge. This has a hidden cost to the business but is almost impossible to quantify. Again, a focus on retaining your top employees is key. Ensuring adequate documentation is in place can also offset some of the impact of this loss of knowledge.
