Costs of recruitment

How do we work out how much recruitment costs? Well, it gets a bit complicated, because costs can be organised in different ways; in New Zealand we tend to consider direct and indirect costs; in the USA the costs tend to be grouped into external and internal (Phillips & Gully, 2015). Direct costs arise where we can point to that and say this was directly related to hiring a new staff member (such as advertising the position), and indirect costs are costs which are are part of someone's job or overhead (such as HR staff time, travel and expenses for selection and interviews, testing, reference-checking and verification of qualifications). This latter category is remarkably hard to track, even though it has been tried (Tsarenko & Krishnamurthy, 2021).

External hiring costs arise where we pay someone outside our organisation (advertising placement, recruiter fees, referral bonuses, travel costs, relocation costs), and internal hiring costs are self-evident (advertising content or co-ordination, travel/interview/referee costs, and staff time). Apparently 90% of hiring costs - "including testing, reference checking, hiring manager time, and administrative support" - are likely to be external costs (Phillips & Gully, 2015, p. 156).

Recruitment costs, or costs per hire/CPH, used to be guesstimated at something like $13k per person, which I would guesstimate to be more like $20k today. In the USA in 2016 this was considered to a little over $4100 (SHRM, 2016). This is a simplistic model, largely only including direct costs (advertising, testing, verifying, contracts), not indirect costs (screening, interviewing, reviews) or the six or so months it takes for a new staff member to become acculturated to organisational processes, procedures, and to build networks.

Those more complex recruitment costs - including training investment - for trainee accountants were calculated out to a staggering 241% of an accounting graduand's annual salary (Twiname et al., 2011). However, those accounting students require two expensive professional exams to become Chartered Accountants once they have clocked up the appropriate number of hours, which significantly inflates costs in this profession (Twiname et al., 2011). It would be interesting to know whether the percentage has shifted since the original study, and what costs doctors and lawyers rack up!

It is interesting just how pricey it is. I began making a rough list of what needs to be factored in, and came up with quite a substantial list (see the image accompanying this post). And I forgot job sizing.

It is a complex bucket of stuff!

Sam

References:

Phillips, J. M., & Gully, S. M. (2015). Strategic Staffing (3rd global ed.). Pearson Education (UK) Ltd.

SHRM. (2016, August 8). SHRM Benchmarking Report: $4,129 Average Cost-per-Hire. Society of Human Resource Management. https://www.shrm.org/topics-tools/news/shrm-benchmarking-report-4129-average-cost-per-hire

Tsarenko, A., & Krishnamurthy, D. (2021). Understanding and Improving Quality in Firm Recruitment Processes: A case study [report 2021:035]. University of Gothenburg.  https://d1wqtxts1xzle7.cloudfront.net/97248696/483817839-libre.pdf

Twiname, L. J., Samujh, H., & Rae, S. (2011). Accounting for the costs of recruiting and training [paper]. Cambridge Business and Economics Conference (CBEC), Cambridge UK, 27-29 June 2011. https://researchcommons.waikato.ac.nz/server/api/core/bitstreams/1fc33677-9d09-4f9c-a9de-8a69368f7ab2/content