Guess how much it costs to hire an employee in 2024? The generous answer is $4.700 per hire, but the Society for Human Resource Management estimates it could be as much as three or four times their salary, with 40% hard costs such as recruitment and administration, and soft costs extras like the time it takes for a manager to onboard new hires successfully.
Want to slash onboarding costs and develop a freelance workforce strategy? You need to look into Fiverr Enterprise, a Freelancer Management Solution (FMS) that helps you source, vet, hire and onboard workers in a fraction of the time.
To understand the truth behind your hiring costs, just keep reading.
A Definition of Hiring Costs
The simple definition of hiring costs are any budget that goes towards onboarding new workers to your business. Cost-per-hire is a commonly used metric in HR and Recruitment, but different companies include different line items in their calculation. For example, while all companies will probably include recruitment costs and advertising for a position, many will ignore factors such as a slow hiring process that leads to losing talent to the competition, which also has a financial impact.
Importance of Understanding Hiring Costs
Understanding your hiring costs is more critical than ever in today’s challenging macroeconomic climate, where every dollar counts. For HR and Recruitment teams, reducing the cost-per-hire means more strategic decision making about where money ends up, and optimized hiring processes overall. For example, if you reduce cost-per-hire, the chances are you’re also reducing time-to-fill, helping to get workers onto new projects or in new roles faster and with less friction.
To get a better handle over hiring costs, think about the following two categories:
Direct Costs of Hiring New Employees
- Advertising and Recruitment: These are the most obvious costs of making a new hire. Posting the position on job boards, working with recruitment agencies, or using marketing efforts to help find the right people all costs money, and these can stack up fast. Depending on your approach, you can also incur additional costs such as employee referral bonuses.
- Hiring Process Expenses: In this category, think about background checks, compliance screenings, technical assessments or the cost of interviewing potential candidates and freeing up interview panels to make that happen. Every time you choose a candidate and they have an unrealistic salary expectation or go with a competing offer – you’re starting this again from the drawing board.
- Administrative Costs: Especially if you’re hiring globally, there are additional direct costs to ensure the employee can legally work for your business, whether that’s obtaining work visas and permits, or complying with local legal requirements in the hire’s own home location.
Indirect Costs of Hiring New Employees
- Time Costs: By some estimates, finding and onboarding a new hire can take 42 days. During this time, the HR department and hiring managers are spending their time writing updated job descriptions, reviewing resumes and cover letters, sitting in on interviews, and having private evaluations. All of this takes time away from their day job, elongating the time it takes to get other projects completed.
- Productivity Loss: Even once a new hire is chosen, the productivity loss keeps on rolling. When your existing team has to train and manage a new employee, their attention is split, and they have to move a lot slower. Studies have shown that the whole team can experience a drop in productivity while a new hire is getting up to speed.
- Training and Onboarding Costs: When a new hire starts work, there’s so much more than handing them their badge! Think about setting up payroll, enrolling them in the benefits program, or updating records. These all take time (and therefore money) from HR. There may also be training costs to consider during the onboarding process, including any materials the new hire needs, and external professional development costs.
Costs Associated with Poor Hiring Decisions
Of course, these are only the costs you need to worry about when you have hired a great fit for the team. There are a whole slew of other expensive issues to think about when you’ve made a poor hiring decision.
The wrong hire will cost you in terms of their salary, which is unrecoverable, wasted management and training time, lost productivity across the team, and however much you paid the recruitment agency for finding the candidate for you in the first place. You may also experience a loss of business, (for example if the new hire was in Sales, failing to meet their quotas) and even a loss of reputation if the person in question was customer-facing.
Strategies to Optimize Hiring Costs Using Freelance Talent
For many organizations, moving to a freelance talent strategy helps to sidestep the financial headaches that come with hiring in the traditional way. Instead of incurring heavy initial fees partnering with recruitment firms or leaning on imprecise marketing spend, a Freelancer Management System (FMS) like Fiverr Enterprise offers access to niche freelance talent at the top of their game, ready and available to start work in a fraction of the time.
Fiverr Enterprise is a single Freelancer Management System that gives you complete control over the sourcing, hiring, management, payment, and compliance processes of your freelance workforce to create game-changing growth for your business. It slashes the costs associated with looking for talent, vetting their skills and expectations, and onboarding them compliantly to hit the ground running the way only freelancers can.
Schedule 30-mins with one of our workforce experts, and you can see how it works for yourself.