Dear Workforce – How Do We Measure Our Hiring Costs

By Staff Report

Dec. 22, 2005

Dear Helping Hand:

You’re not alone. As the labor market tightens, employers focus more on hiring costs and replacement costs to measure the efficiency and effectiveness of the staffing function. Hiring cost measures the efficiency of the process, while replacement cost tracks how effectively it minimizes yourturnover expenses.

Hiring cost has both fixed and variable components. Fixed hiring costs are associated with the overall hiring process and are independent of the individual being hired. Time spent by your managers, interviewers and recruiters usually is considered a fixed cost, since it is accrued regardless of whether you hire an individual or not. Salary, bonus, taxes and benefits costs are included in the total cost of their time.

Also included among fixed costs are licensing, maintenance, and hosting of staffing-related systems, such as human resources management systems, as well as application tracking systems and internal job boards. Job fairs andcampus recruiting also may count as fixed costs, especially when not used to find candidates for a specific position. Finally, count government filings and diversity programs among fixed costs for the staffing function.

Variable hiring costs are directly attributable to the hiring of a specific employee. These include costs for position-specific candidate identification, such as advertisements, employment agency fees, and employee-referral bonuses. Variable costs also include candidate screening/interview items, such as meals, transportation, entertainment and pre-employment testing likedrug screens,background checks and verification of employment and education. Providing new employees with equipment, computer access and training also fall under variable costs.

Replacement costs include the cost of hiring and “on-boarding” as well as the productivity loss from the vacant position.

Measuring loss of productivity in terms of actual revenue can be difficult. Companies often estimate it based on per-employee revenue metrics. Although the metric estimates the loss of an individual, it does not account for the productivity loss of co-workers. And bringing a new employee up to speed, and/or formation of a new team, often diminishes the productivity of a team or an entire department.

To complicate matters, some employees are more valuable than others, and it’sa bigger deal when they leave.

Although hiring costs and replacement costs are two common barometers for the staffing function, companies increasingly are moving toward metrics that measure the quality of the person hired as opposed to the efficiency of the process. By tracking the retention rate, promotion rate andperformance reviews of new hires, your organization can identify recruiting sources and candidates with the potential to become successful employees.

SOURCE: Martha Stiller, director, Human Resources & Investor Solutions, Mellon, Chicago, March 17, 2005

LEARN MORE: Think Twice: Cost Per Hire – Don’t Even Bother argues that hiring costs are a fraction of an employee’s value.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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