Are you hoping to hire new employees soon, but worried that it might cost too much in the short term? If so, understanding exactly how much it might cost your business is key. That way, you’ll know if searching for new talent is a possibility.
In today’s post we’re going to talk about all the costs of hiring new people. If you’re looking to keep your costs low, using our free resume management system and recruitment software is a great place to start. Keep reading to see how Recruiteze can help.
The Costs of Hiring New People
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 a software solution costs could be upwards of more than $3,000.
Once an employee is hired, there are also costs that pertain to training. It’s important to make sure the new hire knows exactly how to do their job. This can often take at least a month. In 2007, Training Magazine stated that companies spent over $1,200 on average, annually per employee. In 2005 the magazine stated that new hires spent at least 30 hours per year on training. This is, as we said, on an average basis. Additional orientation and training would cost more, depending on the type and how much extra assistance the employee needed.
In order to fully calculate the cost of training consider the cost of training and materials and the time managers took to train. That’s where you’ll get an exact cost.
In addition to the employee’s salary, you must also factor in benefits. The list of benefits most companies include can range from the following
- Vacation pay
- Tuition reimbursement
- Sick pay
- Personal time off pay
- Life insurance
- Health care coverage
- Gym memberships
- Free coffee
- Disability coverage
- Dental plans
According to Joe Hadzima, MIT professor, companies should multiply the salary range by 1.25 to 1.4 in order to get the full cost of compensation. For example, if a new hire’s salary is fifty thousand a year, you should expect to spend around sixty to seventy thousand a year for actual total compensation costs.
Your new employees might need a new desk or uniforms. They might also need a computer, cell phone or software to work from home occasionally. This must also be considered with new hire costs. While you might not be able to fully calculate what each employee will need, you can come up with an average.
According to the Studer Group, “A survey of 610 CEOs by Harvard Business School estimates that typical mid-level managers require 6.2 months to reach their break-even point.” This is a small amount of time in the grand scheme of things. When hiring new employees you’re hopefully bringing on talent that you can count on for years to come, maybe even a lifetime of working for your company. When you think about it in those terms, breaking even six months after the new hire isn’t so bad.
How Much Is Lost with New Hires?
First Month of Work
Training is complete so that means new employees should be functioning at about a quarter of full capacity productivity. That means you’re losing 75 percent of their pay, at this point.
Second Month of Work
New hires are more productive in the second month of working after training, so they’re at a fifty percent for productivity. This means you’re only losing about half their salary.
Third and Fourth Month of Work
By this time, employees have a better understanding of their workload and how to ensure they get the job done. They increase their productivity to around 75 percent. This means only about a quarter of their salary is being lost now.
By the fifth month of work, new hires should reach full capacity and be 100 percent productive. From this point on, companies will no longer lose money on employees.
Understanding what it costs to hire new employees can help you with recruiting efforts. You’ll be more in tune with candidates and make sure they’re a great fit for the position before hiring.
We hope these tips help you with recruiting. If you need additional help, consider using our software solution, iReformat or Recruiteze!
Our Free Resume Management System Saves You Time and Money!
Looking for help hiring new employees? If so, you can access our free resume management system for free! We offer free basic memberships without obligation for all of our recruiting products. Recruiteze is a free applicant tracking system for business hiring projects. It allows your candidates to apply to your available job postings and have their resume added to your database immediately.
Already using a free resume management system to help you track job candidates? iReformat makes the perfect addition. iReformat allows you to format resumes with ease for free! In addition, we are proud to offer you a free 15 day trial of any of our other memberships. Other packages start at $10 per month and offer unlimited support, users, and more!
We’ve taken the redundant administrative work out of recruiting. So don’t hesitate to use Recruiteze and iReformat to help reduce the time consuming process of hiring new employees and filtering through resumes and applications. If you have any questions or are interested in our enterprise package that offers unlimited access to all our services, contact us today!