In recent articles, we’ve noted the generally high cost of recruiting and the uniquely challenging employment landscape facing companies. Recruitment, hiring, and onboarding can burn through a ton of capital in pretty short order.
Employers today face growing economic pressure to ensure that they’re getting their full ROI for this capital. In a recent article, we took a deep dive into the Cost Per Hire (CPH) metric. We noted that calculating CPH is vital to truly quantifying your ROI as it relates to actual hiring and employment costs.
In order to draw up this calculation, you must first fully document your actual, total spend on every stage of the staffing process from recruitment and screening to hiring and onboarding. But as we’ll point out in this discussion, some expenses are easier to calculate than others. In fact, your CPH may be inflated by any number of costs that are not only difficult to detect, but which could be killing your ROI.
5 Hidden Costs of Hiring
In the discussion that follows, we’ll uncover some of the hidden costs of hiring and offer a few tips for how you can identify and offset these costs.
1. Indirect Advertising Costs
Naturally, attracting the right talent is the foremost priority when it comes to recruitment. And today, that talent is distributed widely across a massive sea of digital media platforms. It’s no secret that your business must spend capital to post on job boards like LinkedIn, Indeed, or Glassdoor. And provided that these platforms are helping to draw in quality candidates, this may be a sound investment.
However, these costs are just the tip of the iceberg when it comes to digital media-based recruitment expenses. In addition to posting fees, many platforms also charge a monthly subscription fee. Moreover, effective job posting can incur a number of other indirect costs including the paid time spent writing job descriptions, managing posts, and responding to inquiries. Any calculation of advertising costs must include these frequently overlooked expenses as well.
2. Recruitment Labor
Indeed, the investment of time into every aspect of recruiting must be factored into your CPH. The reality of recruitment is that it is a labor intensive and demanding process that requires real energy, effort and thought from your in-house personnel.
HR teams, hiring managers, and senior officers all dedicate hours of the work week to reviewing resumes, conducting phone screenings, scheduling interviews, tendering employment offers, and more. Depending on the nature of the role and your organization’s structure, this process can take weeks or even months for each individual hire. Your CPH must include the cost of compensation for those hours.
A complete picture of your hiring costs should also account for the lost productivity in other areas of your operation when personnel are pulled away from their primary responsibilities for recruitment duties. Naturally, this may be a particularly difficult figure to quantify.
3. Interviewer Costs
A comprehensive interview process will also typically require involvement from hiring managers and senior leadership on several levels. For each candidate, this process must include a careful review of resumes, one or several interviews, reference checks, and more.
Each of these activities may demand the attention of individuals on the higher end of your company’s salary hierarchy. In other words, every hour spent on interview prep, execution, and analysis by a senior leader with other core responsibilities is a relatively costly hour that must be factored into your cost per hire.
4. Onboarding Expenses
The costs of hiring don’t end when your new employee signs on the dotted line. Be sure that your cost per hire calculation includes everything that goes into the sometimes lengthy onboarding and training processes. This includes the resources and hourly compensation for employees who must handle administrative tasks such as payroll onboarding, insurance signup, policy review, and new hire orientation.
Moreover, the time and resources required to train new employees can be significant, particularly where a given role requires specialized knowledge or involves the use of complex systems or technologies. This level of training may also require contributions, guidance and mentorship from members of your team outside of the hiring workflow. The time and resources spent in these areas represent a portion of your hiring cost.
5. Poor Hiring Decisions
The most significant hidden cost of hiring may also be the hardest to quantify. Hiring the wrong person for a position can have a ripple effect on your organization, disrupting workflow, overburdening otherwise productive employees, dragging down productivity and crushing your team’s morale. In the worst case scenario, hiring somebody who is a poor fit for the job can erode customer satisfaction, tarnish your company’s reputation, and even create legal liability.
Any combination of these effects would, of course, have a damaging impact on your company’s bottom line. But just how significant and widespread an impact may be difficult to calculate. The same is true of the cost that comes with high turnover.
When recent hires depart before their expected tenure, the costs related to recruitment and hiring–both the hidden and visible–are essentially wasted. In addition, high turnover can create undue pressure on remaining employees and consequently cascade into an array of issues like delayed project completion, missed deadlines, and strained team relationships.
Again, it is extremely difficult to quantify the negative impact these issues can have on productivity. But to the extent that these issues can also cause macro-level failures like an inability to innovate, foster positive long-term business relationships, or cultivate strong team dynamics, the hidden costs can be enough to stifle your company’s ability to grow and compete in your market.
For an even deeper dive into this issue, check out our feature article on the true cost of a bad hire.
Mitigating the Hidden Costs of Hiring
As per the list of hidden costs itemized above, there are a number of practical ways to trim your expenses. For instance:
- Audit your digital advertising strategy and cut back on costly platforms that get poor results;
- Outsource recruitment, interviewing, and administrative tasks to a cost-effective third-party providers; and
- Streamline and automate repetitive steps in the onboarding process with the support of leading edge digital technology.
Naturally, these steps won’t eliminate the hidden costs outlined above. But these strategies can bring those hidden costs out into the light, making them easier to quantify and control.
Hiring Mistakes and The Hidden Opportunity
This is where hiring mistakes stand in a category unto themselves. Hiring mistakes may represent the biggest hidden cost of hiring. But this area may also represent your best opportunity for lowering your recruitment and hiring costs.
Advertising, interviewing, and onboarding are all necessary expenses that can be reduced through improved practice. Hiring mistakes are a source of waste that can be eliminated through better hiring strategies.
For instance, a recent article in CareerBuilder says that a leading cause of hiring mistakes is a preponderance of subjectivity in the recruitment process.
The issue, suggests CareerBuilder, is that many traditional screening methods like interviews, resumes, and background checks will tell you little to nothing about a candidate’s work habits, team building skills, or leadership potential. Some hires look great on paper, but less so in the actual context of your business. Determining the difference in advance can be a source of dramatic savings.
For many companies, the key to eliminating the hidden cost of hiring mistakes is a more nuanced and complete screening process. This is one of the primary imperatives behind the Success Portraits Personality Test (SPPT).
Our diagnostic tool evaluates prospective employees on 19 distinct traits that, taken together, paint a portrait of potential compatibility. When considered alongside other traditional hiring materials, this personality screening tool can add greater depth, nuance, and objectivity to the screening and hiring process.
As a vetting method, the SPPT can reduce the time and resources spent interviewing candidates who are a poor fit for a given role. As a post-interview tool, the SPPT can lower your company’s risk of offering a position to an individual who is incompatible with your internal culture.
Used correctly alongside other tools, the SPPT may have a profound impact on your ability to reduce hiring mistakes, lower your hidden hiring costs, and build a team capable of advancing your organization’s long-term goals.