Understanding the True Costs of Hiring

Hiring new employees is an essential part of any business. Your organization needs fresh talent and energy to grow and remain competitive in an ever-changing landscape. However, hiring comes with significant costs. Even beyond paying an employee’s salary and providing benefits, the hiring and onboarding process entails many costs that employers often overlook. In this article, we’ll explore the true cost of hiring new employees and ways to mitigate those costs, giving your business new freedom to grow and evolve.

The Hidden Costs of Hiring

The costs of hiring vary widely across companies, industries, and positions. For this reason, leaders must closely examine their specific practices and costs to arrive at a good estimate of their business’ true hiring costs. For example, the Society for Human Resource Management (SHRM) surveyed more than 2,400 businesses of all sizes and in various industries between April and November of 2021. Based on the data collected, SHRM determined that the average cost per hire was $4,683. However, the median cost was just $1,244, and the average cost of executive hires was a whopping $28,329. Many employers report their hiring costs can be three or four times the salary of the associated position.

When assessing your company’s true hiring costs, consider these factors:

Recruitment & Hiring

It can be extremely challenging to find the right people for positions in your organization. Making the right hires takes time, effort, and financial investment. If a company is understaffed, it can suffer lost productivity and sacrifice revenue as it completes the recruitment and hiring process. A June 2023 hiring trends report indicates that hiring is taking longer than ever, averaging 44 days to fill an open position. Like overall hiring costs, the time to hire varies significantly, with easy-to-fill positions taking just 14 days and more challenging roles, such as those that require new and emerging skills, remaining vacant for months.

Recruitment and hiring comprise a variety of costs, such as the following:

• Job posting fees
• Staff time to write and post job announcements and respond to inquiries
• Staff time to assess applications, select and interview candidates, and collaborate as necessary to make hiring decisions
• Background checks for new hires
• Administrative time to process forms and add new employees to payroll and benefits processes
• Workers compensation insurance costs, which can rise unexpectedly if a new hire is injured on the job and create significant risk for small employers
• Cost of workspace and equipment needed for employees to do their jobs

Onboarding & Training

After the hire, employees still need to be brought up to speed. Depending on the position and the applicant selected, it may take significant time before they’re performing at the expected level and creating value. In 2010, researchers found that new mid-level managers took close to three months to reach full productivity and more than six months to generate positive ROI for their employers. This lost productivity is a major cost of the onboarding and training process.

Additional onboarding and training costs include those associated with providing training materials such as printed guides, digital resources, or e-learning programs as well as staff time that must be spent orienting, training, mentoring, and supervising new hires. A 2021 report featured in Training magazine found that small businesses with at least 100 employees spent an average of more than $300,000 on training in 2021. However, this was a particularly low figure, as the pandemic forced many companies to make drastic budget cuts in 2021. The previous year, the average was more than $500,000.

Compensation

While salary and benefits make up the bulk of compensation costs, they don’t tell the whole story. Employers must also pay for taxes for each employee. If your company offers performance incentives, then these costs must also be considered (although ideally, they will be offset by added value to the company). Startups often use equity compensation to attract talent without breaking their budgets; however, simply setting up an equity compensation agreement typically costs thousands of dollars due to the legal, administration, valuation, and reporting costs as well as employee communication efforts required to implement such a plan. When determining total costs for your employees, be sure to account for all the ways they are compensated and the various types of costs incurred to provide that compensation.

Less Tangible Costs

Hiring doesn’t exist in a vacuum. High turnover can quickly multiply hiring costs while undermining employee morale and company loyalty. A company staffed by dedicated, motivated employees has an edge over its competitors that’s hard to measure. Likewise, it’s difficult to quantify the losses a company suffers when many of its employees are “quiet quitting.”

Minimizing Costs While Making Quality Hires

Growing businesses need to attract job seekers that are great fits for their open positions. However, the time and investment required for reaching, attracting, vetting, and interviewing large audiences can often be high. Additionally, small businesses often struggle with the additional costs, legal requirements, and administrative time needed to expand into new territories or scale its workforce. An optimal hiring process minimizes costs in multiple areas without sacrificing quality.

Outsourced Back-Office Solutions

Back-office responsibilities like administering benefits, payroll, and workers compensation must be done with precision and can eat up a vast amount of time for employees or, as in the case of many small businesses, owners. Inattention to detail or inexperience can lead to costly errors. Outsourced back-office service providers specialize in these responsibilities and can handle them more efficiently and effectively than most in-house teams. Because they have broad experience performing administrative tasks across industries, they can help optimize your back-office processes and ensure your company remains compliant with evolving laws and regulations. At the same time, outsourcing allows your staff to be more productive and, if they aren’t particularly fond of these tasks, could also boost morale.

Before going to an outsourced services provider, assess your entire hiring process, from recruitment through training, and determine where you could use the most help. Consider where you’re spending the most on hiring and how much you could budget for an initial solution. As your company sees ROI from this investment and can budget more for outsourcing, it can add services strategically over time.

Investments in Retention

By focusing on employee satisfaction, employers can minimize the need for hiring-related expenditures and instead invest that money into growing talent internally. Consider how much your business could save by training current employees to fill upper level vacancies, which tend to cost more to fill than entry-level positions. You could also offer employee incentives for referring successful hires. Investing in your employees with training, benefits, perks, options, or whatever your company can best offer could generate significant quantifiable savings while also boosting morale, motivation, and loyalty.

Working with ESSG

Employer Solutions Staffing Group (ESSG) has been supporting clients by handling back-office tasks since 2005. We’re experienced at helping employers reduce many of the costs associated with recruiting, hiring, onboarding, training, and retaining quality employees. We do this through a range of outsourced services, including

• Robust and reliable recruitment and HR software
• Staffing solutions that increase access to top talent
• Outsourced HR, legal, and compliance services
• Payroll administration
• Affordable workers compensation insurance with predictable rates
• Expanded access to benefits plans
• Benefits administration

To learn more about how outsourcing back-office tasks like these to a trusted specialist can save time and money while enhancing employee satisfaction, examine our case studies and complimentary guides.