Cost per hire | Meaning, Importance and Components

What is the Cost per Hire?

Cost per Hire helps to determine the typical expense a business faces when hiring a new employee in human resources and talent acquisition. It has to do with finding talent and refers to the overall expense of hiring the new employee and covers a broad range of recruitment-related costs, including advertising, agency fees, internal staffing, interview costs, technology and tools, onboarding, travel, administrative, employer branding, induction and orientation, legal and compliance, and other costs. It is calculated with the formula:

[Tex]Cost~per~hire=\frac{(internal~recruiting~cost+external~recruiting~cost)}{total~number~of~hires} [/Tex]

For Example, If a company spent ₹60,000 on recruitment-related expenses in a given period and hired 8 employees during that time, the cost per hire would be [Tex]\frac{60,000}{8}  [/Tex]i.e. ₹7,500.

Importance of Cost per Hire:

There are several important factors that lead to the fact that Cost per Hire is important in the HR Process. Some of the factors are as follows:

1. Cost monitor: By being aware of the cost per employee, businesses may better control their expenditures for hiring.

2. Budgeting: Businesses may effectively plan their recruitment budgets by understanding the normal cost of hiring a new employee.

3. Efficiency Enhancement: Examining the cost per hire might aid in locating obstacles and inefficiencies in the hiring procedure.

4. ROI Assessment: Calculating the cost per hire is crucial for assessing the recruitment effort’s return on investment (ROI). Companies may evaluate the costs of recruitment against the advantages and benefits that new hires bring to the team.

5. Resource Allocation: Based on the cost per hire for various positions, businesses can strategically distribute resources. While cost-saving strategies might be more appropriate for some roles, others might require greater recruitment expenditures.

6. Competitive Advantage: By enabling a company to invest in other areas of its business or provide aggressive compensation packages to entice top people, effective cost management in recruitment can give a company a competitive advantage.

What does Cost per Hire include?

The cost may vary from company to company. Some of the costs that are commonly included are:

1. Advertising Costs: Costs associated with posting jobs on job boards, social media sites, or other avenues for advertising.

2. Recruitment Agency Fees: Fees paid to external recruiting firms are included if a business employs these organisations to identify candidates.

3. Employee referral bonuses: Any rewards or incentives given to current staff members who recommend job seekers who are ultimately recruited.

4. Background Checks and Screening: Costs associated with reference checks, background checks, and other forms of pre-employment screening.

5. Assessment tools: Tools used to examine a candidate’s abilities and aptitude for the post include assessment tests and other tools for a cost.

6. Onboarding Costs: Costs of onboarding include those for the new hire’s paperwork, orientation, and training.

7. Technology and Software: Costs associated with software, applicant tracking systems (ATS), and other technologies used in the hiring process.

8. Travel costs: If candidates or interviewers must travel as part of the hiring process, expenses, including flight, accommodation, and meals may be covered.

9. Legal and Compliance Costs: Costs associated with ensuring legal compliance during the recruiting process, such as background check charges, legal fees, and compliance training.

10. Miscellaneous Costs: Any additional costs directly associated with hiring, such as payment to job-posting websites, moving expenditures, or signing incentives.

Conclusion

Understanding and tracking Cost per Hire has a number of advantages, such as efficient cost management, preparing the budget, increasing efficiency, data-driven decision-making, and a competitive edge. This metric enables HR divisions and companies to ensure that their hiring procedures are effective, legal and in accordance with their primary goals and financial restrictions.