What is the TRUE cost of recruitment?
7th September 2020
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While you might think you’ve budgeted for this, with their salary covered in your figures, it’s quite likely that you’ve not budgeted for a few other things.

I was told by one business a while back that recruitment simply only costs them the salary plus associated contributions and a bit of time (I'm guessing they meant for interviews and the like?) They seem complacent in the fact that they would never have a staffing shortage, even though they already struggle in some departments, blaming a 'skills shortage' for waiting and restaurant staff. After some considerable discussion around retention and the costs of recruitment, I decided I was dealing with a lost cause! However, I did give them a quick insight in to the model below.

I then explained that they were really missing the point and that losing a staff member for any reason was VERY expensive!

So, next time you have a 'difficult situation', next time you think that a team member is really not worth training up, consider the costs, as well as maybe what you as an employer might have missed, before you move them on!

Here is the breakdown for a senior supervisor or middle management team member:

Recruitment costs

Firstly, you need to get the right person. You can go down two routes. You can use a recruitment agency, which can cost around 20-30% of the final salary – on an average salary this would be over £5,000. Or you could do it yourself on social media and job sites.

Both processes use either internal or external management level resources and cost money!

Estimated average cost: £3,000.

Salary

Obviously, this is the big cost. And while it very much depends on what sort of experience you’re looking for, what level you’re hiring at and the contract specifics, you can assume it’ll be in the tens of thousands of pounds. UK Government figures put the average salary at around £27,600pa.

Estimated cost: £27,600.

Bonuses

Not all companies pay bonuses, but many are starting to come around to the idea as a way of rewarding good work and boosting employee retention. Government figures put the average bonus payment as 6% of total pay.

Estimated cost: £1,656.

National Insurance

Every employer has to pay towards their full-time employees’ National Insurance (NI). The standard rate of an employer’s Class 1 NI is 13.8% of the total pay. This includes bonuses and any over time.

Estimated cost: £4,037.

Pension

As part of the auto-enrollment scheme, employees are automatically signed up to a basic company pension scheme. This means employers have to pay a minimum of 3% of workers’ monthly salary towards a pension.

Estimated cost: £828 (estimated).

Training

Most companies offer either in-house training or funding towards external training. Either way, this comes at a cost. It’s a vital cost as training can help improve employee retention rates, whilst increasing customer service. The average UK company spends over £1,000 per employee.

Estimated cost: £1,068.

Office space and equipment

Unless you’re replacing someone, you’ll need to provide a new employee with desk space, computer and more. Blue Chip Office Index put the total property cost per occupant at £4,800.

Estimated cost: £4,800.

Other costs

It doesn’t end there. There are an array of other costs to consider such as the HR costs to deal with new starters, holiday cover, cover for maternity leave, sick days, software licences and a huge amount more!

Estimated cost: £8,000.

Total cost

So, for your £27,600 new staff member, you’ll actually need to budget for something closer to £56,000 in their first year of employment.

As a rough guide, in lean businesses, I tend to use a 50% allowance to onboard new team members. So, if someone has a salary of £20,000 then its always going to cost you around £40,000 in year one (as an estimated average).

So, to be clear...

Next time you recruit, next time you look at developing your team, next time someone seems a bit of a challenge, ask yourself if you need to be trying harder or if it's actually worth the costs!

Next time you are looking at why your team are moving on, next time you look at how your managers are managing their teams, make sure you are getting value for money! Indeed, if a manager has a high level of 'churn' in their department, ask the question 'why' and look at what its costing you. Equally, if one particular manager is always saying 'get rid' maybe there is something you are missing!

All-in-all recruitment is expensive, constant change doesn't help your business develop with confidence(unless you are in a spell of massive growth) and above all else doesn't send the right messages to your other team members!

If you need HR Support or Advice - www.hrsupportsussex.co.uk

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HR Support Sussex

Member since: 2nd June 2020

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