How much does it cost to hire a new employee? Nationwide, the average cost per hire (CPH) exceeds $4,000, and that number doesn’t include associated costs such as training, loss of institutional knowledge, or hours spent interviewing on the part of non-HR staff. Hiring an executive will cost you even more, to the tune of nearly $15,000 per hire on average. Of course, the precise cost per hire will be different for every company and it’s not an exact science. Still, calculating the amount you spend to bring new employees on board is a valuable exercise as you evaluate your hiring process.
What To Include In Your Cost Per Hire Calculation
Your cost per hire should consider more than just the hard costs of recruiting. Let’s take a look at the most important expenses you should include in your calculation:
- Recruiter Salary – This is the amount you pay in salary to your internal recruiting staff. It may vary based on how long it takes you to fill the position and how many people are involved.
- Background Checks and Other Testing – Include any drug tests, work eligibility tests, and other testing needed to qualify a candidate for the position.
- Assessments – Calculate the amount you pay for any skills-based testing, personality profiles, or other assessments you require candidates to complete.
- Job Promotion – Job boards, job fairs, social media advertising, and recruitment marketing costs all fall under this category.
- Technology – This may be a monthly fee or a one-time cost, depending on whether you use on-premises software or a cloud-based solution.
- Interviewing – Hiring costs should also include the hours people outside of HR spend interviewing candidates (e.g., managers, executives, or team members). If you bring non-local candidates in for interviews, include the cost of their travel and accommodations.
- Onboarding and Training- Onboarding and training costs include the time spent on the part of your current staff members for any live training as well as costs for materials and technology. If you use an online platform to host the training, include this cost as well.
- Referral Rewards – If you have an employee referral program, include those rewards in your cost per hire calculation.
How Does Outsourcing Change the Equation?
If you outsource some or all of your recruiting needs to a third-party specialist, you will approach your calculations differently. Some costs may still apply (such as your training program and onboarding costs), but many will be rolled into the fee you pay the external provider.
Cost per hire in these instances will depend on the type of recruiting firm you use. Here are two of the most common:
- Search Firms – Search firms generally handle low volume hiring needs like executives and highly skilled roles. They will generally charge 20-35% of salary for the position. For a position that pays $50,000 per year, that means you’re looking at $10,000 - $17,500. In some cases, this cost may be worth it. If, for example, you need to fill a C-level position, the targeted approach of a search firm can be precisely what’s needed to find the right person.
- RPO Firms – Recruitment process outsourcing (RPO) firms are much more flexible, with options for outsourcing all or part of your recruiting function in a short-term, long-term, or on-demand arrangement. You can expect to pay 5-13% of salary for each hire (depending on the pricing model), which translates to $2,500 - $6,500 for our $50,000 example.
When you use an RPO firm, your cost savings multiply based on the number of positions you need to fill. It many cases, RPO is the most cost-effective way to manage hiring costs while also maintaining the flexibility and scalability you need.
Are you ready to learn exactly what you’re paying for each new hire? Use our cost-per-hire calculator!
