The Total Cost of Hiring an Employee
Hiring new team members is one of the most positive aspects of being a business owner. New hires (ideally) come on board enthusiastic and ready to put out their best work. Harnessing that energy and drive over the duration of the employees’ tenure is an absolute imperative. But we also have to consider the bottom line: what is the total cost of hiring an employee?
Looking at the Total Cost of Hiring an Employee
As we enter the endemic phase of COVID-19, employees are looking forward to a new way of working that takes into consideration many of the factors we collectively encountered and learned through during the worst stages of the pandemic. The result of this trend is that businesses are taking a close look at the bottom line when it comes to the total cost of hiring an employee.
When it comes to calculating the total cost of hiring an employee, some businesses are simply missing the mark. Mistakes are made when businesses fail to look beyond the basic costs such as salary when they plan to hire. The true cost of hiring includes compensation and employee retention. The latter is all too often overlooked by business owners. Employee retention can make or break a business’s productivity levels and can seriously impact profitability.
Salary is a cost that can be closely predicted and planned for. Your company has a starting range, there may be room for negotiation, and you can plan accordingly for merit raises and cost of living adjustments in accordance with your company’s policies and practices. You will want to be sure you are offering a competitive salary so you don’t run the risk of losing out on the best employees. Knowing the industry standards when it comes to salary and benefits packages is an absolute must.
On average, salary accounts for roughly 70 percent of total compensation. The remaining 30 percent is eaten up by employee benefits. However, the total cost of hiring a new employee is more than wages, salary, and benefits. So when the negotiations have been made and the employee has accepted an offer there are still many expenses to consider.
The trickier calculations come about when looking at retention. There are many pieces to employee retention and it can be a challenge for businesses to get it right. Employee retention is crucial and the work of retaining an employee starts as soon as an offer is made and agreed upon and a new employee is signed on.
A Well-Oiled Hiring Machine
The total cost of hiring an employee starts long before any resumes hit the desk of the Human Resource Manager. Businesses need to invest in their hiring process if they want to see stellar results. A well-tuned and consistent hiring process saves a lot of trouble down the road and means that every qualified prospective employee gets a fair shake regardless of any inevitable internalized biases.
The most successful companies work with outside agencies or in some cases an internal task force or committee to refine their hiring practices. This not only increases the likelihood of attracting highly qualified talent, but it also gives the company a good name when it comes to being one of the better places to apply and work. Where you advertise and how you recruit matters. And we haven’t even begun to talk about onboarding!
The Role of Onboarding
The total cost of hiring an employee should take into account a decent onboarding. Onboarding begins as soon as an employee is hired. Employees should be given the tools they need to succeed and hit the ground running in their new position. Efficient and effective training is a part of any successful onboarding. Your company should have a plan in place for onboarding so that the cost of training and familiarizing your new employee with the company can be calculated and included in your estimate of the total cost of compensation and employee retention.
Research shows that an employee who is properly onboarded is more likely to not just stay with the company, but stay motivated and engaged in their work. Onboarding and training a new employee can be time-consuming and expensive but it is the best way to ensure a productive workforce – and cost savings – in the long run. That said, a well-polished onboarding program can save your business a lot of time and money in addition to making your company look its absolute best.
It should come as no surprise that the total cost of hiring an employee also includes benefits. Since benefits account for a sizable amount of the total cost of compensation and employee retention it is important to know your figures. A good benefits package is one of the things talented employees will be looking for from a company. Benefits include paid leave such as family and medical leave, parental leave, health insurance, retirement plans, life insurance, and often other legally required benefits such as unemployment insurance, worker’s compensation insurance, and social security insurance.
When all is said and done your business should treat the cost of hiring and retaining talent as it would any other investment. What you put in now will either give you a good return on your investment or will end up costing more than you bargained for.
If you think that you could benefit from working with a business coach with years of corporate, management, and coaching experience, then contact AMB today.