Finding the best talent can propel your business to success. Your workers are the heartbeat of your business as they drive it towards its goals. But like any other business expense, labor comes at a cost, from recruitment to remuneration. And it’s important to factor in how much each hiring process will cost when juxtaposed with the expected benefits. Labor expenses, in general, can account for as much as 70% of total business costs, including wages, taxes, and other employee benefits. But exactly how much you’ll spend on each hire depends on several factors. Knowing what to expect beforehand in terms of cost can help your business prepare financially for the process, ensuring each hire is within your spending limit. Here are some costs to consider when hiring a new employee.
7 Costs To Consider When Hiring A New Employee | Business
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Pre-employment background checks
Employee background checks are important as they help you ascertain whether a candidate is a good fit for your company. The checks often cover a potential employee’s criminal background, credit background, history of drug use, employment history, legal working status, and social security status. It allows you to verify the candidate’s identity and professional qualification (including certificates and licenses), judge past mistakes (and predict potential ones), and protect your business from liability issues.
Although background checks are not required by law, studies show that almost 95% of employees carry them out because of the benefits mentioned above. Again, your HR department can carry out such background checks aided by the necessary resources. But in the absence of a dedicated department, you can hire the services of background check companies at a fee.
Now that you have investigated a candidate’s background and recruited them, you must equip them with all they need to integrate into their new working environment and give their best. Employee onboarding comprises any action that will help your recruits understand how things work in their new environment, acquaint themselves with the company culture, and feel welcome or valued. That comes in various stages, from orientation to training.
But onboarding also includes practices like equipping the new hire with an ID. You can check out ID card pricing from experts to get an idea of how much you might spend. You might also have to give new hires access to work-related technology and control systems.
Onboarding expenses differ from company to company, so crunch the numbers with your HR team or accounting department to determine how much you can expect to spend.
Hiring an external recruiter
For a small business without an HR department, using an external recruiter is one of the best ways to get the right talent for your business. Most of these recruiters usually have a pool of talent ready to source from, reducing the time it takes to recruit a new hire. Even if the pool does not contain the talent you need, an external recruiter can easily search for the right options in a considerably shorter period. That’s because most of them have the tools and resources to hone in on the right candidates.
However, recruiting agencies come at a cost, with different agencies having multiple pricing structures. For example, some accept a percentage of the successful candidate’s annual salary while others charge a flat rate. The best way to determine how much a recruiting agent will cost is to contact them directly. Take the time to contact several options so you can compare their prices against their level of service.
The candidate search and vacancy publicity costs are key things worth considering when looking to hire a new worker. Advertising the job opening on multiple platforms, pre-screening candidates, contacting the qualified ones, and arranging for interviews all come with some expenses, and you must prepare for them. Even if you choose to use a recruitment agency (which has proven to be cost-effective and efficient), you can expect to pay some amount for that service. Recruiting a new employee is not cheap, with some experts putting the average cost at around $4,000. But don’t forget that the recruitment process can also cost your business time, especially if you don’t have a dedicated Human Resources (HR) department.
Salary and compensation costs
One of the first things employees think about when recruiting a new hire is the salary. Here also, this depends on the new hire’s qualifications, tasks, and your business’s financial standing. But the most important thing is to ensure that your employee receives a fair wage. Aside from the regular salary, every other benefit your employee gets (bonuses, insurance, retirement plans, health checks, and other perks) adds to the compensation expenses. Again, the total amount you can expect to spend will depend on the level of perks or remuneration you provide.
Hands-on training costs
Some workers require a specific type of training to handle equipment, machinery, and software or to build their capacity. Most businesses arrange for various training programs throughout an employee’s time with the company. Each training costs time, effort, and, of course, money.
While training programs can be expensive, they are considered an important part of creating an empowered employee. They equip workers with what they need to be at their productive best. However, not all training programs are necessary, so focus on the ones that will lead to significant improvements in your business and bring high returns on investment (ROI).
Employee retention cost
While few employers think about it, it’s important to consider how long you’ll be able to retain your new employee. Admittedly, it isn’t easy to know that for sure, but you can refer to previous employee data to give you an idea of your employee retention rate.
So, why is this important? The reason is the longer you retain an employee, the less you spend on new hires. As already mentioned, recruits cost money, and you can avoid all these extra costs by finding ways to retain your best talents. If you have a low retention rate, you can expect to spend more money on hiring new workers.
Overall, it’s difficult to say what the true cost of hiring a new employee is as you have to consider many factors. However, knowing the common expenses associated with it can guide your hiring process.