Hiring a new employee entails additional costs beyond their wage.
If you manage a small business, you will eventually need to hire someone. And, while you may believe you’ve budgeted for this, as their wage is already included in your figures, there are a lot of other charges to consider when expanding your staff roster.
When most people consider recruitment costs, they refer to the external cost of hiring. This is often 15-30 percent of compensation in organisations that rely on recruitment agencies, and higher in organisations that use executive search firms. Advertising, subscriptions to social media and database aggregators, attendance at recruitment exhibitions, and the expense of any in-house recruiters are additional charges. Numerous businesses strive to decrease their overall expenses by bringing recruitment in-house, thinking that by hiring recruiters, they can eliminate the need for agencies. As a result, they frequently deliver cost savings of 8-15 percent when compared to salaries; this is sometimes less than they planned for, but yet appears considerable. However, it’s worth mentioning that over 70% of in-house solutions fail to fill all, or even 90%, of their vacancies on their own, necessitating the assistance of agencies, bringing the average cost up to 12-20%. Another ostensibly cost-cutting strategy, the standard Recruitment Process Outsourcing (RPO) option, ostensibly saves in-house recruiters money. The following is a breakdown of the costs associated with adding a new member to your team.
Costs of recruitment
Most businesses track the time it takes to hire new employees but disregard it as a cost. However, it is a massive overhead. Given the typical reactive recruitment climate, the average period required to fill a position is 10-12 weeks (from job opening to accepted offer), during which time the role remains vacant. There is either no productivity during that time period, or productivity is generated by distracting someone else, most usually the management, or by contract labour. Each of these possibilities carries a monetary penalty, which increases as the hiring schedule slips. It’s critical to note that in-house recruitment teams typically take longer to hire than agencies or recruitment process outsourcing solutions, on average 12-16 weeks, due to a lack of substantial databases and industry contacts. This has a noticeable effect on the bottom line.
To begin, you must locate the appropriate individual. You have two options. You can employ a recruitment agency, which will cost between 20% and 30% of the final salary – which would be more than £5,000 on an average wage.
Alternatively, you might do it on your own via social media and job sites. This often costs between £200 and £400 if you use LinkedIn and a single job board.
The average cost is estimated to be £3,000.
Salary
Clearly, this is a significant expense. And, while it will vary significantly depending on the type of experience you need, the level at which you hire, and the parameters of the contract, you can anticipate it to be in the tens of thousands of pounds. According to UK government statistics, the average pay is roughly £27,600.
Cost estimate: £27,600.
Bonuses
While not all businesses offer bonuses, many are beginning to see the value in doing so as a means of recognising good work and increasing employee retention. According to government statistics, the average bonus payment is 6% of total compensation.
£1,656 is the estimated cost.
National Insurance
Every employer is required to contribute to the National Insurance contributions of their full-time employees (NI). Employers’ Class 1 NI is typically 13.8 percent of total pay. This includes any bonuses and overtime earned.
Cost estimate: £4,037.
Pension
Employees are automatically enrolled in a basic corporate pension scheme as part of the auto-enrolment scheme. This requires companies to contribute a minimum of 1% of employees’ monthly wages to a pension fund, which will increase to 3% in near future.
Cost estimate: £276 (which will increase to £828 soon in the future).
Training
The majority of businesses provide either internal training or money for external training. In either case, there is a cost. It is a necessary expense because training can assist increase staff retention rates. The average UK business spends more than £1,000 on each employee.
£1,068 is the estimated cost.
Office space and furnishings
Unless you’re replacing an employee, you’ll need to equip a new hire with a workstation, a computer, and other essentials. According to the IPD Blue Chip Office Index, the average cost of property per occupant is £4,800.
Cost estimate: £4,800.
Other expenses
That is not the end of it. There are a variety of other expenditures to consider, including human resource costs associated with new hires, holiday insurance, coverage for maternity leave and sick days, corporate automobiles, and software licences.
Cost estimate: £8,000.
Cost in total
Thus, for your £27,600-a-year new employee, you should budget closer to £50,000 for their first year of employment.
According to Nazia Ahmed, HR Director at BE Offices, the entire cost of employing a new employee may be more than it appears. Enterprises, particularly small businesses, must budget carefully when hiring new employees to avoid overextending themselves and putting the company under needless financial burden. However, because personnel are a business’s most valuable asset and will underlie future growth, hiring new staff is critical for expansion. Businesses just need to be aware of the true cost of recruiting new employees.
Offshoring is a cost-effective resourcing strategy that enables organisations to hire offshore personnel in a low-cost country, resulting in up to 70% lower employment costs. However, there is a widespread misperception that lower costs equate to worse quality. This could not be further from the truth, especially if you outsource to the best option available.
You may save yourself from all these recruitment costs by offshoring it to Alt Works:
A prudent strategy to boost profits in your organisation is to reduce expenses in a way that does not adversely affect revenue. Therefore, have a look at your numbers. Determine how your firm is performing and which of your major expenses are the highest. If your business is like the majority, you already know without looking that your largest expense is recruitment cost.
Historically, it was impossible to save money on labour and its recruitment without jeopardising your income or effectiveness. Not long ago, there was nothing you could do except improve management, productivity, and tools. But now, you can easily offshore/outsource it to Alt works which will not only save you from recruitment cost but also provide you with best business services from very skilled staff.
However, offshoring to Alt works has created an exciting new possibility for many organisations to dramatically reduce their recruitment expenses without sacrificing quality or skills.
Comparative Annual Cost per Hire
Business Development Officer
Recruitment Cost in House Cost at Alt works
| Recruitment Cost: £3,000 | £500 (refundable deposit) |
| Salary: £27,600 | Monthly Subscription: £999 per month |
| HR ongoing expenses £350 | 0 |
| National Insurance: £2589 | 0 |
| Pension: £810 | 0 |
| Training: £1,068 | 0 |
| Office Space and Equipment: £4,000 | 0 |
| Total Cost: £38,349 | £11,988 |
