What is the true cost of new employees? Managing employees and hiring employees is difficult!
When owner managers or commercial HR professionals decide to add more resources to their company, do they ever make provision for the true cost of the hire?
We have done a lot of research in this area and have a wealth of personal experience in managing budgets associated with hiring. Working out the true cost of what an additional employee seat costs obviously differs per job, per company, per jurisdiction, and also whether the employee’s role is based at the company’s offices or whether they work remotely.
Our research has thrown up a couple of staggering discoveries. Out of 1,000 companies polled in the tech, professional services, and construction sectors, 78% said that the recruitment budget was managed by their finance department, and no financial responsibility was owned by HR or the hiring managers. This segment also said that the recruitment budget was calculated as a percentage of the person’s basic salary, ranging anything from 15-40% of the starting salary. No wonder the recruitment business is so big!
According John Hall’s recent article in Forbes, ‘The Cost Of Turnover Can Kill Your Business And Make Things Less Fun’, he reckons that “In fact, it’s not uncommon for recruiters to request 20-30 percent of a new hire’s first-year salary”.
As an owner manager or a CEO, you should look at this practice and see if it exists in your business, as there are serious savings that can be made. If you are a commercial HR professional, you can make a serious name for yourself in any company if you look at these practices and offer to control and administrate this budget.
As a CEO/owner manager/commercial HR professional, there are so many ways that you can save your company money – here are 6 ways to reduce the costs associated with recruitment:
1. Use an ATS (Integrated applicant tracking system, online hr software). The return of investment associated with using an ATS can be as much as 50 times the cost of the system. It’s amazing in this day and age the number of companies have not automated their recruitment and selection processes. I hear many of you saying, “We’re too small for this” but that is not the case – the cost of automation has reduced, particularly in the last 5 years. For the cost of one recruitment or advertising fee you will save significant money in the long run.
2. Set up and administrate an internal employee self-service referral programme. This can be an excellent way of attracting talent by getting your employees to be your own recruitment scouts. If you are a good employer, your employees will love extending new opportunities to their friends and network. Many ATS’s have automated employee self-service referral systems built in, a brilliant feature. You can reward your employees for referring successful candidates and again, your ATS should be able to automate this.
3. Put a preferred recruiters list in place, sometimes known in the industry as a ‘PSL’. Select specific recruiters that you will use as part of your resourcing strategy. Not only will putting a PSL in place allow you to reduce your costs when using recruiters, it will also allow for your recruiters to develop good relationships with you and your hiring managers. This should increase your recruiters’ success rate, which is a win-win for everyone.
4. Build a database of good candidates in advance of any recruitment drive, your ATS should allow you to easily administrate this.
5. Only go to your preferred recruiters on jobs that are difficult to fill. Sometimes, hiring managers and HR/recruitment professionals can become lazy and just give every job to their preferred recruiters. If you give the hiring budget to your HR department/hiring managers and establish realistic KPIs for the budget, this will allow you to monitor the spend and reward the employees that understand the value of money.
6. If you work for a trusting organisation and you promote remote working, this can also reduce the cost per employment seat. Not every job or person in my experience can operate remotely, as there are many elements to consider, but if remote working is a strategy you’re willing to implement, it can save your organisation a fortune, increase employee commitment, enlarge the talent pool you can recruit from, and increase your talent retention rates.
[CTA: Looking for an Applicant Tracking System? Click here for advice on choosing the right system for you] The following research was published by Joe Hadzima, a senior lecturer from the MIT Sloan School of Management:
“Unless you are hiring traveling salespeople, you need to provide some physical space to house the new employee. Obviously the rent per square foot varies depending on the fanciness and location of the facility. But how many square feet does an employee need? Again, this varies but there are some guidelines. Work cubes are typically 8′ x 8′ in size and private offices range in size. In high tech figure on 225 to 250 square feet per employee when you add in common space. Furnishing the space, even with used work cubes will probably run $2,000 at a minimum.”
Remote working is a growing trend worldwide and is currently being deployed by many organisations such as Shopify, Apple, and Slack, amongst many others. There are even companies whom have been known to offer relocation expenses to employees who consider working from home to cut down on expensive real estate costs.
This trend moving towards remote working has come about as certain employees whom are in high demand can dictate where they work from and when. Employers should look at what roles or employees they could allow to work from home or in locations that they choose to work from. If you are looking at remote working for the first time, please take your time and make sure the policy works for you as the employer and as well as your employee. My advice is to start with a pilot and see if can it work for you as an option. When remote working works well, it is brilliant for all concerned, but in my opinion, you should consider the points below as a minimum. Remote workers are not just for now (or Christmas ;)) you have to blend them into your overall resource and company strategy. As a starter, consider the below headings;
• The job itself
• The employee
• Communication tech & strategy
• Your employee’s work station
• Home, digital hub, remote nomad
• Hours of work (how, where and when?)
• Data security & systems
• The contract
• Employee contact and well-being/employee engagement
• Your employee’s motivations and career progression
While remote working is not for every business, it could be an option to be explored.
It’s funny, just as I was writing this article, one of our clients at HRLocker messaged me on LinkedIn and asked the below (messages edited for brevity!):
“Hey Adam, I am looking for a recruiter to join my team. Would you know anyone – have to have an amazing attitude and work ethic, ability to help me build a candidate experience we are famous for and cool projects on employer branding, recruiting in other countries, attracting difficult to find profiles etc. competitive salary, benefits and a really fun place to work with a great boss 😉. Many thanks”
“Hi XXXX, hope you are well. We have given you our ATS Hire for free for the last year and you have not used it? That would allow your job to be posted to 10+ job boards for free, linking with your social media, LinkedIn, Twitter, Facebook and there is an employee referrals automated process that should give you great coverage, call me if you want to chat. Cheers, Adam”
“Hi Adam, Thanks for getting straight back to me. I have a new recruiter starting next week. I’ll get her to have a look at it. I don’t really have time to explore the system at the mo. It’s super busy.”
“You have 24 jobs live at the moment, let’s say average salary €50K (which is conservative). Let’s say you hire half of them through recruiters at a low recruitment rate, say 15%. €50k x 12 jobs = €600k. Total cost of recruitment fees €90K… time to implement HRLocker/Hire 3 hours, cost of hire for you guys with deployment support €5,688.
The return on investment is stupid times the cost of the product, not to mention the improved candidate experience and the amount of time saved in administration time. If you let me do this for you, I will cut down on your recruitment spend by over €50k or I will give you your money back.
If you think it is worth a call then please reach out, I would love to help. I know I can help as I have hired 600 people for a tech company in the past in three years and paid less than 4 recruitment fees… Cheers, Adam”
As an owner manager, CEO or a commercial HR professional, get your managers or HR resource (If you have one) to own their hiring budget and incentivise them to keep the costs down. Look at the above six suggestions and implement the one that is right for you and your company. It might take a little lateral thinking but it is well worth it and it will save you time in the long run!
[CTA: Did you know HRLocker has an Applicant Tracking System, HIRELocker, that’s fully integrated with HRLocker? Contact us today to find out more!]
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