The Cost of Hiring & Training an Employee

April 10, 2017 Kim Schollick No Comments

To most managers, hiring new employees chews up a lot of time. But did you know that as well as eating away at your day, welcoming new staff members to the team can cost your company big time?

Even if you’re taking on seasoned new hires, they’ll still undergo a learning curve when it comes to settling into their new role, as well as adapting to company culture, established processes and other company quirks.

So, regardless of whether you manage a team of five, 15 or 500, there’s no escaping the fact that the cost of training a new employee is going to hit you hard.

Breaking down the costs

Every business is unique, which means calculating the costs of recruitment isn’t black and white.

That said, it’s naïve to ignore statistics from industry leaders. In terms of recruitment costs, training time and lost productivity, a recent study from British firm AXA PPP healthcare estimates that it costs SMEs almost $50,000 to replace a single staff member.

As a result, the biggest area of focus for SMEs in 2017 will be improving the employee experience through a better work/life balance, flexible working options and strategic procurement practices.
Upfront costs

In most cases, a handful of upfront costs are standard. This includes time spent writing an advertisement, sifting through resumes and responding to suitable applicants.

For example, if a manager earns $35 an hour and spends 10 hours completing all of the above tasks, the cost is a flat $350. It may not seem like much, but we assure you, it’s just the beginning.

Next is the actual interview process, which can consume hours, if not days of your time.

Similar to the above example, simply track how much time you spend interviewing prospective employees, and multiply this figure by your hourly rate. Chances are, it could top the $500 mark, particularly if you conduct second round interviews.

Onboarding costs

Now cue the real costs. These are incurred during the onboarding process, when new hires transition into their roles. The latest stats from the 2014 Training Industry Report offer candid insight into the costs of recruiting, with analysts reporting that the annual training budgets of US small businesses employing at least 100 staff tops $400,000.
The hidden costs of recruitment

Then there’s the hidden costs, which businesses are forced to front regardless of whether they have training budgets in place.

Beyond advertising, interviewing, screening and hiring, these include factors like internal training, induction, management and loss of productivity. Not to mention a slump in customer service standards as new recruits learn the ropes. In the long-term, losing one customer can cost your company thousands of dollars.

According to the Society for Human Resource Management (SHMR), these factors place the cost of hiring new employees at around six to nine months worth of their salary.

This is a great algorithm, as it can be applied to any role, from casual counterhands to six figure execs. So, for casuals earning as little as $20,000 a year, the costs could add up to $15,000.

Even in low paying jobs where responsibility is minimal and employee turnover is high, a recent CAP study estimates that replacement costs can still top 16% of the employee’s annual salary. This means that even for SMEs, recruitment still comes with a big price tag.

The rank of employee retention

What does this all mean? Basically, it proves that employee retention should be a front-of-mind concern for both SMEs and blue chips alike. From independent cafes to multinational chains, the importance of staff retention is paramount. Ultimately, even the greenest of burger flippers could end up costing your business thousands of dollars.

So how can you hang onto your top performers, and avoid the exorbitant costs that go hand in hand with training new staff? The first step is to set a benchmark for your employee retention rate, and take proactive steps towards hitting your goal.

This should be backed up with proven retention strategies, tailored to suit the unique needs of your business, and its employees.

We’re talking employee incentive schemes, personalised benefits, open communication, staff satisfaction surveys, and of course, exit interviews. Not to mention getting it right the first time.

Plain and simple, investing in employees that leave after a month or two wastes not only your time, but also your money. All of these factors play an important role in helping your business improve staff retention rates, and avoid the costs of bringing in new blood.

If you loved this advice you’ll find plenty more on the Ento blog. Browse our articles on employee engagement, workforce management, and more today!

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