by Robin Throckmorton, MA, SPHR
With the role of human resources shifting from service and administration to strategic planning partner, we need to take on more accountability for how we impact the success of the business. The biggest impact we can make is on the “human” resources the organization employs to maintain the business. Therefore, we must assess the quality and cost of recruiting and retaining these resources.
In the 2002 SHRM/EMA Staffing Metrics Study, SHRM found that 84% of the respondents felt that a metric that measures the cost to hire a new employee was high or extremely high in importance to their job. Unfortunately, there is not a universal formula for calculating the recruitment costs associated with a hire. The cost varies from organization to organization and depends on the factors an organization chooses to include. Nevertheless, the general rule of thumb is that the cost to replace an employee is 100 — 150% of their annual salary. Depending on the number of individuals the organization needs to hire/replace, this cost could have a big impact on the bottom-line.
Any impact on the bottom-line will get the attention of senior management if you can show the metrics. Since there isn’t a universal formula for calculating recruitment costs, you will need to determine what costs you want to track and attribute to your hiring. There are many direct and indirect costs that you may consider including in the calculation. Below are some of the basic costs that you need to consider:
- These are any costs that you incur to source for candidates, which may include print ads, online job posting boards, and/or resume banks.
- Be sure you divide the cost of these sources by the number of positions you are filling, using that source to have a true cost for a specific hire.
- How much time and expense does your administrative staff expend to open, respond, and route resumes to the hiring team? The best way to do this is to figure out an average cost per resume and track how many resumes you receive for each job to be able to calculate the administrative cost per job.
- How much time does your hiring team / recruiter spend screening through resumes? This may also be an average cost per resume received for the job.
- If your organization conducts preliminary phone interviews, how many were conducted and how much time was spent by the recruiter to prepare, conduct, summarize and communicate the results of those interviews?
- Do you have an automated applicant tracking program? This is an indirect cost that you may choose to pro-rate across your hires for a specific period of time, somewhat like depreciating a new computer on your taxes.
- Did your hiring team or the interviewee incur any travel expenses that were reimbursed by the company?
- How much time was spent scheduling interviews?
- How many staff members were involved in the interviews? How long per interview? How many interviews? What is the average cost of the interviewers’ time?
- How much time and what was the cost for follow-up with candidates during negotiations and to notify those that were not hired?
- What was the cost of referral fees from a recruiting agency or an employee referral?
- What costs will the company be paying for the new hire to relocate? Some costs may include moving company, airplane tickets, hotel accommodations, temp housing, house hunting visits, assistance with sell/buy, or spouse/dependent assistance.
- What was the cost for background investigations and/or reference checks? Drug screens?
- If there was a signing bonus, how much was it?
- What costs does the company typically incur to bring someone onboard – orientation, mentor, benefits enrollment, computers, cell phones, uniforms, etc.?
Not every hire will incur all of these expenses. And, your organization may choose not to track some of these costs but this list is a starting point to help you identify your recruitment costs per hire. The key is to identify what recruitment costs you are going to track and then consistently track them for all your hires to have an internal comparison from one hire to the next.
However, just like when you hire someone, you don’t make your decision based on one criteria but rather many combined tools. Measuring the success of your recruitment cannot rest solely on the cost. There are other measures you need to consider as you evaluate the overall success of your recruiting and what you can do better next time.
- How long did it take to fill the position from start to hire date? What could you have done to reduce the time to hire and not have impacted the quality of the hire?
- What was the impact on productivity while the position was left vacant? This is a very difficult calculation to conduct especially depending on the position. However, it does have an impact on the hiring manager and the organization as a whole. If it can’t be quantified, at least keep it in mind.
- How satisfied was the hiring manager / organization with the hire? This assessment can be done following the hiring but should be repeated again 3 – 6 months after the employee has been on the job to get a real sense of how successful the hire was.
The key to any analysis is to reflect on what worked and what could have been done better or different the next time. So, don’t just track the costs and set them aside. But rather, be sure you review your cost analysis and each of these other measures to identify what you can capitalize on next time and what you need to do different. For example, what was the success of your recruitment sources? Which ones provided the most candidates and more importantly the quality candidates? Which ones did not? This type of evaluation will help you to streamline your next hire, improve the quality, and reduce costs.
Employees are the “human” resources of the organization. Each employee is critical to the success of the company or you wouldn’t hire them. Be sure you are hiring the best in the most efficient time frame while maintaining your costs.
Robin Throckmorton, MA, SPHR, a Senior Human Resources Management Consultant is President of Strategic Human Resources, Inc. (www.strategicHRinc.com). If you have any questions or wish to share your comments with Robin, you can contact her at Robin@strategicHRinc.com.