The cost to hire an employee might be higher than you think


The price of making a new hire – and retaining them – has skyrocketed in the past year. So what’s the solution to keeping costs down?

In a survey of over 1500 HR professionals from Australia and New Zealand, ELMO Software, in partnership with the Australian HR Institute, found that the cost to hire an employee more than doubled in 2021, rising from $10,500 in 2020 to $23,860 per worker.

According to the report, the time it takes to make a new hire increased from an average of 33.4 days to 40 days in Australia, and from 36.5 days to 50 days in New Zealand.

Some of the other key findings from the report include:

  • HR spends seven hours per week getting new employees up to speed during the onboarding period.
  • One in three respondents said recruitment took up too much of HR’s time.
  • Two in three respondents said general admin took up too much of HR’s time.
  • 67 per cent said their HR budget for recruitment had either stayed the same as last year or increased.

Managing talent is a costly and time-consuming endeavour. But what’s driving this upward trend, and how might organisations look to keep costs down?

The cost of quality talent

Think of the hours your team spends on each stage of the recruitment process – crafting job descriptions, conducting interviews and background checks, and so on.

“There is still an enormous amount of value activity that goes with recruitment strategy,” says Monica Watt, Group Chief HR Officer at ELMO Software. “You need a personable experience.”

Providing a quality recruitment experience takes time, she says, and is inherently a manual, hands-on undertaking that cannot be automated no matter how sophisticated the technology.

Watt believes that while technology can streamline processes, people-first approaches will continue, which will likely eat into organisations’ time and budgets. This means recruiters need to learn how to work smarter (more on that in a moment).

But it’s not just recruitment itself that hits an organisation’s hip pocket. Beyond the upfront expenses, there are hidden costs to keep in mind.

Consider how organisations might need to upgrade their facilities, or move to new premises, as a result of an expanding workforce.

A new employee will also require equipment, whether that’s a laptop, tool set or company vehicle. There can also be unforeseen costs that stem from relocating employees, posting on external job sites and offering referral bonuses.

If their workforce becomes large enough, Australian organisations welcoming fresh faces into the fold could also be liable to pay fringe benefits tax.

“You’re growing people that are already aligned to you. You’re growing people that are on the journey with you.” – Monica Watt, Group Chief HR Officer at ELMO Software

The uptick in recruitment costs might in part be due to wage increases, says Watt.

Salaries have gone through the roof, says Watt, who notes that while entry-level jobs once came in around the 70K mark, she recently saw one role going for $170,000.

This is hardly the reality across the board, but it’s certainly an indication that the cost of hiring someone new is high from the outset.

Indeed, the Society for Human Resource Management (SHRM) estimated that the average cost of employee onboarding is around US$4100 (approximately $5500) for each new hire.

Onboarding documents and forms alone cost up to US$400 per new employee and training sits at the $1292 mark.

SHRM estimated that, for mid-level staff, it costs about 20 per cent of a departing employee’s wage to replace them. For executives, that number can reach 213 per cent of the average salary.

No matter how impressive your new talent is, the cost of recruiting them is hard to ignore.

Reconsidering recruitment

These statistics demonstrate an urgent need to streamline the recruitment process to reduce costs.

Doing away with protracted recruitment processes and multiple rounds of interviews is a great way of reducing both cost and team member effort – as are clearer job descriptions.

“I’m not a fan of position descriptions,” says Watt. “I don’t do everything that’s in my position description.”

She suggests that instead of listing a prospective employee’s duties, which might not end up reflecting reality, employers should focus on sharing the outcomes they need to achieve success in the role, such as the ability to multitask on a variety of projects or strong client service skills.

This is another cost-saving technique, she says, as it lessens the time needed to bring someone up to speed.

The rise of technology has also given employers tools to alleviate the strain on HR budgets and timeframes.

For example, there are apps that conduct background checks and psychometric testing in lieu of a human worker.

Photo: Sora Shimazaki, Pexels

Such tools need to be effectively designed, of course.

“Technology has to remove friction and enhance the user’s experience,” says Watt. “[But] there are so many non-technical things we can do as an organisation to positively impact our retention and development strategies.”

This includes reconsidering the need for traditional recruitment in the first place.

“At times, you do need to bring on new talent,” she says. “You need those skills, you need that experience and you need new blood.

“But if you create the opportunities for your people to grow, have a rich culture, [and have] great rewards and recognition programs, then you’re growing people that are already aligned to you. You’re growing people that are on the journey with you.”

For Watt, the question becomes, ‘How can you increase engagement of your own people to reduce high employee turnover?’

“Your internal stakeholders, internal employees, internal candidates – and that’s what they should be treated as – really need to be a strategic objective,” she says.

When you do decide to bring on new talent, her recommendation is to better utilise internal recruitment strategies such as referrals and secondments.

With those techniques in place, employees might be able to hit pause on the increasing costs of recruitment.


Want to hone your recruitment skills? AHRI’s short course is designed for HR professionals looking for practical advice for sourcing the best candidates. Learn more and apply today.


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3 Comments
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Sam
Sam
3 months ago

Thank you for the article – interesting points. I’d like to just add as an expert in human behavioural dynamics: please don’t use apps to perform psychometric testing, but rather someone trained to do so.

Don
Don
3 months ago

Some thoughts *Employers have got lazy with recruitment – looking for agencies to do the work for them, but they lack local knowledge of the role and the business. They also charge very nicely for the service. *Employers need a properly structured and resourced recruitment group who can spend the time and energy on seeking the most suitable. *Technology has helped but has also short-circuited an effective process in a bid to save time and get a bum on the seat. *PD’s have become 10-15 page docs with corporate propaganda dominating the document in the interests of trying to be… Read more »

Max Underhill
Max Underhill
3 months ago

What is the cost of getting it wrong. Back in the Button Car Plan days the cost of getting it wrong ranged between 1.2 years of wages up to a staggering 14x the annual salary. This has to take into account the rehiring and re training and at the upper end sabotage/ labour withdrawal, domino effect and legal costs. With new IT systems we find the cost of recruitment is dramatically decreasing, using competency based position design and valuation software that also generates the questions, determines gaps and values the interviewed applicants. The accuracy and value adding features are incredible… Read more »

More on HRM

The cost to hire an employee might be higher than you think


The price of making a new hire – and retaining them – has skyrocketed in the past year. So what’s the solution to keeping costs down?

In a survey of over 1500 HR professionals from Australia and New Zealand, ELMO Software, in partnership with the Australian HR Institute, found that the cost to hire an employee more than doubled in 2021, rising from $10,500 in 2020 to $23,860 per worker.

According to the report, the time it takes to make a new hire increased from an average of 33.4 days to 40 days in Australia, and from 36.5 days to 50 days in New Zealand.

Some of the other key findings from the report include:

  • HR spends seven hours per week getting new employees up to speed during the onboarding period.
  • One in three respondents said recruitment took up too much of HR’s time.
  • Two in three respondents said general admin took up too much of HR’s time.
  • 67 per cent said their HR budget for recruitment had either stayed the same as last year or increased.

Managing talent is a costly and time-consuming endeavour. But what’s driving this upward trend, and how might organisations look to keep costs down?

The cost of quality talent

Think of the hours your team spends on each stage of the recruitment process – crafting job descriptions, conducting interviews and background checks, and so on.

“There is still an enormous amount of value activity that goes with recruitment strategy,” says Monica Watt, Group Chief HR Officer at ELMO Software. “You need a personable experience.”

Providing a quality recruitment experience takes time, she says, and is inherently a manual, hands-on undertaking that cannot be automated no matter how sophisticated the technology.

Watt believes that while technology can streamline processes, people-first approaches will continue, which will likely eat into organisations’ time and budgets. This means recruiters need to learn how to work smarter (more on that in a moment).

But it’s not just recruitment itself that hits an organisation’s hip pocket. Beyond the upfront expenses, there are hidden costs to keep in mind.

Consider how organisations might need to upgrade their facilities, or move to new premises, as a result of an expanding workforce.

A new employee will also require equipment, whether that’s a laptop, tool set or company vehicle. There can also be unforeseen costs that stem from relocating employees, posting on external job sites and offering referral bonuses.

If their workforce becomes large enough, Australian organisations welcoming fresh faces into the fold could also be liable to pay fringe benefits tax.

“You’re growing people that are already aligned to you. You’re growing people that are on the journey with you.” – Monica Watt, Group Chief HR Officer at ELMO Software

The uptick in recruitment costs might in part be due to wage increases, says Watt.

Salaries have gone through the roof, says Watt, who notes that while entry-level jobs once came in around the 70K mark, she recently saw one role going for $170,000.

This is hardly the reality across the board, but it’s certainly an indication that the cost of hiring someone new is high from the outset.

Indeed, the Society for Human Resource Management (SHRM) estimated that the average cost of employee onboarding is around US$4100 (approximately $5500) for each new hire.

Onboarding documents and forms alone cost up to US$400 per new employee and training sits at the $1292 mark.

SHRM estimated that, for mid-level staff, it costs about 20 per cent of a departing employee’s wage to replace them. For executives, that number can reach 213 per cent of the average salary.

No matter how impressive your new talent is, the cost of recruiting them is hard to ignore.

Reconsidering recruitment

These statistics demonstrate an urgent need to streamline the recruitment process to reduce costs.

Doing away with protracted recruitment processes and multiple rounds of interviews is a great way of reducing both cost and team member effort – as are clearer job descriptions.

“I’m not a fan of position descriptions,” says Watt. “I don’t do everything that’s in my position description.”

She suggests that instead of listing a prospective employee’s duties, which might not end up reflecting reality, employers should focus on sharing the outcomes they need to achieve success in the role, such as the ability to multitask on a variety of projects or strong client service skills.

This is another cost-saving technique, she says, as it lessens the time needed to bring someone up to speed.

The rise of technology has also given employers tools to alleviate the strain on HR budgets and timeframes.

For example, there are apps that conduct background checks and psychometric testing in lieu of a human worker.

Photo: Sora Shimazaki, Pexels

Such tools need to be effectively designed, of course.

“Technology has to remove friction and enhance the user’s experience,” says Watt. “[But] there are so many non-technical things we can do as an organisation to positively impact our retention and development strategies.”

This includes reconsidering the need for traditional recruitment in the first place.

“At times, you do need to bring on new talent,” she says. “You need those skills, you need that experience and you need new blood.

“But if you create the opportunities for your people to grow, have a rich culture, [and have] great rewards and recognition programs, then you’re growing people that are already aligned to you. You’re growing people that are on the journey with you.”

For Watt, the question becomes, ‘How can you increase engagement of your own people to reduce high employee turnover?’

“Your internal stakeholders, internal employees, internal candidates – and that’s what they should be treated as – really need to be a strategic objective,” she says.

When you do decide to bring on new talent, her recommendation is to better utilise internal recruitment strategies such as referrals and secondments.

With those techniques in place, employees might be able to hit pause on the increasing costs of recruitment.


Want to hone your recruitment skills? AHRI’s short course is designed for HR professionals looking for practical advice for sourcing the best candidates. Learn more and apply today.


guest
3 Comments
Inline Feedbacks
View all comments
Sam
Sam
3 months ago

Thank you for the article – interesting points. I’d like to just add as an expert in human behavioural dynamics: please don’t use apps to perform psychometric testing, but rather someone trained to do so.

Don
Don
3 months ago

Some thoughts *Employers have got lazy with recruitment – looking for agencies to do the work for them, but they lack local knowledge of the role and the business. They also charge very nicely for the service. *Employers need a properly structured and resourced recruitment group who can spend the time and energy on seeking the most suitable. *Technology has helped but has also short-circuited an effective process in a bid to save time and get a bum on the seat. *PD’s have become 10-15 page docs with corporate propaganda dominating the document in the interests of trying to be… Read more »

Max Underhill
Max Underhill
3 months ago

What is the cost of getting it wrong. Back in the Button Car Plan days the cost of getting it wrong ranged between 1.2 years of wages up to a staggering 14x the annual salary. This has to take into account the rehiring and re training and at the upper end sabotage/ labour withdrawal, domino effect and legal costs. With new IT systems we find the cost of recruitment is dramatically decreasing, using competency based position design and valuation software that also generates the questions, determines gaps and values the interviewed applicants. The accuracy and value adding features are incredible… Read more »

More on HRM