The Hidden Costs of Hiring: in Money ??Time ? & Energy??

The Hidden Costs of Hiring: in Money ??Time ? & Energy??

The true cost of hiring goes beyond the direct expenses involved in the recruitment process. Hidden costs can have a significant impact on the overall success of a business.?In my experience, one of the most underestimated is the energy expenditure of employees. Why? Because this costs the business in the long run.

“Many employers estimate the total cost to hire a new employee can be three to four times the position's salary"

“Many employers estimate the total cost to hire a new employee can be three to four times the position's salary,” according to Edie Goldberg, the Founder & President of E.L. Goldberg & Associates in Palo Alto. This huge figure highlights how important is to consider all costs, including costs of employee turnover.

Costs: Money, Time & Energy

I believe we need to look at three categories of costs: in Money, in lost employee Time, and in employee Energy. High employee energy costs can drive the turnover rate, as well as other not so visible factors. Considering all three costs also gives us a better view into when external hiring will be the better choice over internal hiring. Internal looks better short term because there is less budgetary expense. However, long term the value of internal resources and the potential benefits of conserving their focus and energy are huge.

Short Term & Long Term Costs

But how can it be 3 or 4 times the salary?

Based on assessments in a recent Forbes article and my own experiences here is how we can break it down for a role at €60K:

?? Internal Recruiting costs: On average about 10% or €6K for all recruiting processes and costs

?? Lost Productivity: Up to €30K until you find a replacement. As the role remains vacant, tasks are either delayed or distributed among the team, reducing overall efficiency.

?? External Hiring costs: On average about 25% or €15K depending on how specialized the talent search is.

?? Lost Opportunity of Missed or Delayed Goal: €50K-100K? To estimate we need to look at the value of the goals that the departmental leaders and managers of the role might miss due to lost time and energy. Supporting HR-specific roles in the hiring process -- screening, interviewing, and decision-making -- takes away time from their hours and energy which could be going towards business outcomes.

?? Burnout & Negative Energy: Up to €20K in burnout or attrition related costs is not hard to accumulate as the team picks up the slack. Overburdened employees can become disengaged, leading to further turnover. Investopedia estimates that it’s also expensive to replace hourly workers—around $3,500 to replace an employee with a wage rate of $8 per hour.?And it goes up from there: Harvard Business School showed that it takes over 6 months for companies to earn back their investment in replacing mid-level managers.?

You may suffer costs of up to €180K or more to fill that role. Soft costs account for around 60% of the total cost.?Here is a breakdown of the costs associated with hiring, categorized by Money, Team Time and Team Energy, and whether they are Known or Hidden, and Long-term or Short-term:

Estimated costs for hiring a role at €60K, Internal vs. External


Hidden Costs: Internal vs External

By working with external agencies for specialized roles, businesses can mitigate the hidden costs of hiring. Employees remain motivated and productive by focusing on reaching business goals, rather than being distracted by the hiring process. Even the Lost Productivity will be lower because hiring through specialized experts accelerates the hiring process. External support helps avoid additional employee frustration, overwork, or burnout. While external hiring costs more up front in visible costs, the bottom line is only a fraction of what internal hiring costs the company for higher level roles in total.

If you want to discuss how to mitigate these costs, feel free to reach out. ??

#EmployeeRetention #CostOfTurnover #HRStrategy #BusinessLeadership

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Frank Stadler

Managing Director | AI Act Regulatory Consulting | Data Leader | Advisor | Speaker | Mentor

4 个月

Very true and often not considered! Good post, thanks for sharing your thoughts on this topic!

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