The real cost of hiring an employee in 2024

When you’re running a business, you make spending decisions on a daily basis. Quite often, the real cost of hiring a new employee is one of the most expensive decisions that can be made. And no, we don’t mean the amount you pay for their salary; we mean the costs that encompass recruiting, training, benefits, and more.

The time and expenditure spent on hiring may look startling, but it is ultimately the mechanism that keeps businesses growing and enables better performance. And in order to understand the processes that are responsible in delivering high returns, it is important for them to be continuously evaluated.

Therefore, in this article, we will look at the real cost of hiring an employee during the key stages of recruiting. Once we go through that, we’ll tie the costs up and also provide a solution to optimize your hiring costs.

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The real cost of hiring an employee in 2024

When you invest in effective and intelligent recruitment processes, it results in higher profits, increased revenue growth, and lower turnover rate. However achieving it is not as simple as it looks.

There are various and potentially higher costs in the process of hiring. These include advertising the job opening, reviewing resumes, pre-screening & background checks, conducting interviews, and various other recruitment-related tasks.

Here, we take a closer look as we dig into the most common hiring costs across any industry and how each of these contributes to the overall cost to hire a new employee.

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The Emotional Toll

Organizations are trying to meet a growing demand for higher compensation, time off, flexible work schedules and perks. But all of that comes with a cost: mental exhaustion and fatigue for hiring teams.

"The mental and emotional toll of all the ghosting, demands, etc., aren't sustainable and likely causes them to lose focus on other duties," said Sharon DeLay, SHRM-SCP, founder of GO-HR, a full-service consulting firm in Columbus, Ohio.

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Costs of external hiring v/s having an internal HR team

As much as we hate to see it, a dedicated HR team is simply not in the books for many companies. With a profusion of startups populating the world today, and teams of a dozen or so people running the business, a hiring expert may not always be on the board.

Startup owners already spend around 40% of their working hours on non-income generating tasks. A lengthy hiring process would simply be a pile-on. That is why many startups enlist the help of external hiring support such as recruitment agencies. But, this comes at an additional cost.

Most recruitment agencies operate on the basis that they are only paid when the right candidate is hired. The cost of this service ranges between 15 and 25 percent of the employee's annual salary, with possibly additional bonuses for C-suite level talent.

But a company that’s big enough to have the resources to carry its own hiring process can build an HR team dedicated to the job of hiring employees. The costs for having an internal HR team for hiring greatly varies from outsourcing the job.

In a hiring process that is run by an internal HR team, the HR professional performs all the tasks from setting up the job ad, to putting it on job boards, sourcing and screening candidates, assessing and interviewing them, all the way to making a job offer.

In the upcoming sections, we’ll be breaking down the real cost of hiring an employee in these individual cogs that are run by the company’s internal HR team.

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The cost of posting on job boards

The initial costs that an internal recruitment team will need to consider is the costs of advertising the vacancy. The cost of posting ads on job boards is the most preferred choice, but prices vary from which site you choose to use.

The time and expense for writing an ad copy and completing one posting comes up to 1 hour and 30 minutes, and costs approximately $37.50.

LinkedIn, a networking site for job professionals, is one of the major sites for job hunters and recruiters. Apart from the tree job posting model which only lets you have one free job post open at a time, they also run a pay-per-click model which will will set you back $1.20 to $1.50 per click on your job ad, depending on the job title, location, and competition.

Aside from LinkedIn, here are some high-level costs from popular job boards:

• Indeed: Your budget can vary between $0.10 to $5 per click depending on the title, location, and competition.
• Monster: A monthly subscription from $249 per month for one job to $999 per month for five jobs.
• CareerBuilder: A monthly subscription from $219 to $599 depending on the number of roles.
• Dice: A single job post for 30 days for $395.
• Craigslist: $10 to $75 for a 30-day job posting.

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The cost of applicant reviewing

Now, before you get to pre-screening candidates, you have to run their resumes through a review process. Resumes are often run through resume parsers before landing into the hands of an HR professional. Resume parsers are often integrated in an ATS platform.

Setting a budget for an Applicant Tracking System (ATS) depends on the objectives and expectations of the company, and is also relative to their size. Large corporations spend around 7% of their recruiting budget on an ATS and may even opt for sensitive features. Whereas SMBs with smaller operations will have very limited hiring needs and be cost-sensitive. Pricing models could vary wildly, from $2500 per month up to $125,000 for large enterprises.

But, often with resume parsers, you run the risk of missing out on qualified candidates for technical misses such as the lack of correct keywords. Depending on the kind of passing tool you employ, you can be guaranteed an accuracy rate that falls between 70% and 90%.

After the resumes are filtered by the ATS, then comes the part of reviewing and handpicking resumes for the pre-screening process.

Now, suppose you receive over 250 responses to your job post (this number could be higher because you may receive more job postings if you post across multiple job boards). A recruiter may take as much as 5 minutes to review a single resume or, as recent reports have pointed, as low as 6 seconds to review one!

Therefore reviewing resumes could take between 25 minutes to 21 hours, which would cost between $10.42 to $525.00. Then, prepping a short list of candidates to contact would take up approximately 2 hours and cost $62.50.

The total time of the the entire review process would add up to 23.5 hours or more, and a total cost of $587.50.

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The cost of pre-screening & background checks

Once you’ve narrowed on a list of applicants, you get onto the process of evaluating the quality of the candidate before interviewing them. You may either choose for a phone screening or video pre-screening. Pre-screening is a necessary step to weed out candidates that would not be a right fit for the role.

Suppose you’ve narrowed down to a list of 16 candidates in the review stage, you would ideally spend 15 minutes per candidate on a phone screening call or business phone system, resulting in a total of 4 hours and an expenditure of $100. Video pre-screening 16 candidates for a duration of 15 minutes per candidate would land you with the same time and cost.

Once you’ve found your bunch of ideal candidates, it’s best practice to learn more about them before making an offer through background checks. You can run checks for any information from verifying their education, previous employers, to criminal databases. Depending on how detailed you want to go, a standard background check can cost as little as $5 or as much as $80.

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The cost of preparing & conducting interviews

Next comes the process of preparing and conducting interviews. Preparing for an interview includes interview question prep and phone calls for interview scheduling. Let’s assume that after running pre-screening and background checks, you have narrowed to 6 candidates. Prepping interview questions would take up 30 minutes and cost up to $12.50. Calling up the 6 candidates for scheduling an interview would altogether take 45 minutes and cost $18.75.

Once you’re done with the interview prep, it’s time to prepare your interview method. Today, video interviews have become a popular choice for conducting interviews in an hybrid workplace setting. It saves on travel time and all you need is require is access to a computer with a webcam and a stable internet connection.

According to statistics, at least 60% of hiring managers and recruiters use video technology. According to a survey of 506 companies, 47 percent use video interviewing to shorten the hiring process, and 22 percent would consider it for interviewing candidates who aren't local.

However, some video services can cost upto $99 for a single posting. An recruitment solution that renders multiple services for the hiring process would be a better alternative to that.

In an in-person interview of 6 candidates, one interview can take an average of 30 minutes. Therefore, the total duration of conducting the interviews would be 3 hours, and the total would come up to $75.

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The cost of wrapping up the whole process

Now comes the final stages of the hiring process. This stage would include the testing, second and final interviews, and miscellaneous tasks to tie up the whole process.

Here’s how you could estimate the duration and costs during this period, assuming you have narrowed down to 2-3 interviewees after the previous stage:

1. Role proficiency testing: 1 hour; $25
2. Second interview scheduling: 30 minutes; $12.50
3. Checking references: 2 hours; $50
4. Final interviews: 1 hour 30 minutes (30 minutes per interview); $37.50
5. Miscellaneous time to tie up other tasks: 1 hour; $25
6. Calls to all interviewees: 1 hour 30 minutes; $37.50

Ultimately totalling up to a duration of 7 hours and 30 minutes and a cost of $187.50.

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The cost of onboarding & training

Hiring doesn’t just end at handing over the offer letter, though. What many fail to consider in the real cost of hiring a new employee is the expense that the company will spend on onboarding and training them.

These expenses include:

• The cost of IT equipment (Laptop, phone, eSIMs, software licenses)
• The cost of formal training and courses
• The cost of employee support (Time taken by other team members to support)
• Productivity loss as the new recruit gets up to speed.

Research suggests that it takes between 8 to 26 weeks for am employee to achieve full productivity. During this time, organisations tend to lose more money than earn it during the time that goes into employee training. And while IT and training costs may be easier to quantify, only an employer would be able calculate how much support and cost a new employee will need.

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The total real cost of hiring an employee

Now that we’ve identified the core areas, we just need to add up the values to get the total real cost of hiring an employee.

Taking into consideration the examples that we ran with above, here’s how an internal hiring team would calculate their hiring cost:

1. 1-month ad on job boards: $37.50 - $999
2. Applicant review process: $587.50
3. Pre-screening and background check: $180
4. Preparing and conducting interviews: $106.25
5. Wrapping up the process: $187.50
6. Hours of work by the HR manager: $7700
7. IT equipment: $600
8. Training courses: $400
9. Employee support: $6000
10. New employee signing bonus: $2000

Total - $17,798.75 - $18,760.25

And there’s your total real cost of hiring an employee. Admittedly, it's an expensive one. But, it gives you a fair idea of what your average cost of hiring could amount to in 2024.

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How to cut-down hiring costs with peopleHum

What if you had a solution that could cut-down on the cost it took to hire an employee?

That is exactly a problem that peopleHum can solve. With our intelligent Applicant Tracking System, recruiters can source, screen, and shortlist new hires and save up to 20 work hours per week on the hiring process.

If you’d like to optimize your hiring process and save resources, peopleHum can help you there. Book a free demo with us and we can show you how to reduce the cost of hiring an employee, how to efficiently hire with automation, and locate & acquire top-tier talent! Revisit the real cost of hiring an employee in 2024.