Hiring new employees is a critical process for any organization. However, understanding the actual cost involved in hiring, including advertising, time spent, and the potential costs of delays, wrong hires, and employee turnover, is crucial. Let’s dive into the detailed breakdown of these costs with formulas and insights.
1. Cost of Hiring a Resource from Advertising
The cost of advertising includes all expenses related to promoting the job opening.
Formula: Cost of Advertising=∑(Job Boards Fees+Social Media Ads+Recruitment Agency Fees+Company Website Maintenance)\text{Cost of Advertising} = \sum (\text{Job Boards Fees} + \text{Social Media Ads} + \text{Recruitment Agency Fees} + \text{Company Website Maintenance})Cost of Advertising=∑(Job Boards Fees+Social Media Ads+Recruitment Agency Fees+Company Website Maintenance)
Example: If you spend ₹15,000 on job boards, ₹11,000 on social media ads, ₹38,000 on recruitment agency fees, and ₹7,600 on website maintenance, the total cost of advertising would be: 15000+11000+38000+7600=₹71,60015000 + 11000 + 38000 + 7600 = ₹71,60015000+11000+38000+7600=₹71,600
2. Cost of Time Spent for the Hire
The time spent by HR and hiring managers during the recruitment process is a significant cost.
Formula: Cost of Time Spent=(HR Hours×HR Hourly Rate)+(Manager Hours×Manager Hourly Rate)\text{Cost of Time Spent} = (\text{HR Hours} \times \text{HR Hourly Rate}) + (\text{Manager Hours} \times \text{Manager Hourly Rate})Cost of Time Spent=(HR Hours×HR Hourly Rate)+(Manager Hours×Manager Hourly Rate)
Example: If HR spends 30 hours at ₹2,000 per hour and the hiring manager spends 10 hours at ₹4,000 per hour, the total cost of time spent would be: (30×2000)+(10×4000)=60000+40000=₹1,00,000(30 \times 2000) + (10 \times 4000) = 60000 + 40000 = ₹1,00,000(30×2000)+(10×4000)=60000+40000=₹1,00,000
3. Actual Cost for Each Role
The actual cost of hiring includes advertising, time spent, and other associated expenses.
Formula: Actual Cost of Hire=Cost of Advertising+Cost of Time Spent+Interview Costs+Onboarding Costs\text{Actual Cost of Hire} = \text{Cost of Advertising} + \text{Cost of Time Spent} + \text{Interview Costs} + \text{Onboarding Costs}Actual Cost of Hire=Cost of Advertising+Cost of Time Spent+Interview Costs+Onboarding Costs
Example: With advertising costs of ₹71,600, time spent costs of ₹1,00,000, interview costs of ₹24,000, and onboarding costs of ₹40,000, the total cost would be: 71600+100000+24000+40000=₹2,35,60071600 + 100000 + 24000 + 40000 = ₹2,35,60071600+100000+24000+40000=₹2,35,600
4. Daily Cost Calculation in Delaying the Decision
Every day a position remains unfilled costs the company in terms of lost productivity and revenue.
Formula: Daily Cost of Vacancy=Annual Salary of Position260\text{Daily Cost of Vacancy} = \frac{\text{Annual Salary of Position}}{260}Daily Cost of Vacancy=260Annual Salary of Position
Example: If the annual salary for the position is ₹50,00,000, the daily cost of vacancy would be: 5000000260=₹19,231\frac{5000000}{260} = ₹19,2312605000000=₹19,231
5. Actual Cost of Taking the Wrong Hire
A wrong hire can be extremely costly due to the need for rehiring and the impact on team productivity.
Formula: Cost of Wrong Hire=Actual Cost of Hire+Termination Costs+Rehiring Costs+Lost Productivity Costs\text{Cost of Wrong Hire} = \text{Actual Cost of Hire} + \text{Termination Costs} + \text{Rehiring Costs} + \text{Lost Productivity Costs}Cost of Wrong Hire=Actual Cost of Hire+Termination Costs+Rehiring Costs+Lost Productivity Costs
Example: If termination costs are ₹1,50,000, rehiring costs are ₹2,25,000, and lost productivity costs are ₹3,75,000, the total cost of a wrong hire would be: 235600+150000+225000+375000=₹9,85,600235600 + 150000 + 225000 + 375000 = ₹9,85,600235600+150000+225000+375000=₹9,85,600
6. Cost to Company if the Hire Leaves Soon Due to Underpaying
If an employee leaves soon due to underpayment, the company incurs additional costs for rehiring and loss of productivity.
Formula: Cost of Early Turnover=Actual Cost of Hire+Rehiring Costs+Lost Productivity Costs\text{Cost of Early Turnover} = \text{Actual Cost of Hire} + \text{Rehiring Costs} + \text{Lost Productivity Costs}Cost of Early Turnover=Actual Cost of Hire+Rehiring Costs+Lost Productivity Costs
Example: If rehiring costs are ₹2,25,000 and lost productivity costs are ₹3,00,000, the total cost of early turnover would be: 235600+225000+300000=₹7,60,600235600 + 225000 + 300000 = ₹7,60,600235600+225000+300000=₹7,60,600
7. Actual Cost to Company if the Hire Joins a Competitor
If a hire joins a competitor, the company not only loses an employee but also faces competitive disadvantages.
Formula: Cost of Losing Employee to Competitor=Cost of Early Turnover+Competitive Loss\text{Cost of Losing Employee to Competitor} = \text{Cost of Early Turnover} + \text{Competitive Loss}Cost of Losing Employee to Competitor=Cost of Early Turnover+Competitive Loss
Example: If the competitive loss (due to lost clients or market share) is estimated at ₹3,75,000, the total cost would be: 760600+375000=₹11,35,600760600 + 375000 = ₹11,35,600760600+375000=₹11,35,600
8. Actual Cost to Company if the Ex-Hire Now Starts Generating Revenue for the Competitor
When an ex-hire starts generating revenue for a competitor, the original company faces further financial impacts.
Formula: Cost of Revenue Generation for Competitor=Cost of Losing Employee to Competitor+Estimated Revenue Generated by Ex-Hire for Competitor\text{Cost of Revenue Generation for Competitor} = \text{Cost of Losing Employee to Competitor} + \text{Estimated Revenue Generated by Ex-Hire for Competitor}Cost of Revenue Generation for Competitor=Cost of Losing Employee to Competitor+Estimated Revenue Generated by Ex-Hire for Competitor
Example: If the ex-hire is estimated to generate ₹15,00,000 in revenue for the competitor, the total cost would be: 1135600+1500000=₹26,35,6001135600 + 1500000 = ₹26,35,6001135600+1500000=₹26,35,600
Summary
Hiring is a complex and costly process. By understanding and calculating these costs, companies can make more informed decisions. Delays, wrong hires, and employee turnover can significantly impact a company’s bottom line. Thus, it is crucial to ensure competitive compensation, a thorough hiring process, and a supportive work environment to retain top talent.
Tools for Cost Calculation
- Jobvite: A comprehensive recruitment platform with cost analysis tools.
- BambooHR: Provides detailed reports on hiring costs.
- Workable: Offers recruitment cost tracking features.
Free Alternatives
- Google Sheets: For tracking and calculating costs manually.
- Zoho Recruit: Offers a free plan with basic cost tracking features.
- Trello: Use for organizing and calculating recruitment tasks and costs.
