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Did you know how much hiring the wrong employee can cost your company? Hiring the wrong person as a middle manager can cost a company up to 130,000 euros. If such misguided hiring happens several times a year, it's safe to assume that it's a significant amount of money that discreetly escapes the company's budget. Today, let's take a look at what the hidden costs of employment are and where exactly this fortune is seeping away.
Recruitment costs, as we all know, are not only the direct costs associated with buying and posting an ad, but also numerous indirect costs associated with other HR activities in conducting the hiring process. Indirect costs include the labor costs of the recruiter, i.e., the average number of hours the recruiter spends reviewing applications and meeting with applicants. Also, do not forget the time spent by the department manager in the recruitment process, as he/she is also involved in the process.
Recruitment costs also include the cost of process planning or the tools used in recruitment. We are talking about ATS systems, candidate assessment tools, etc. As you can see, the cost of hiring an employee consists not only of the price of the job advertisement, but also of many other, more complex factors. Their scope increases even more when you add the remuneration of headhunters and recruitment agencies, which are sometimes involved in the process of finding candidates.
The cost of hiring a new employee includes, for example, the cost of onboarding programs. Their goal is to help the employee through the period of acclimation to the new organization and integrate him or her into the company as quickly as possible. These costs also include the value of the work of the training department, which deals with planning the onboarding process and adapting it to the needs of the employee and the specifics of the job. To these costs must be added the cost of the planned induction events, the working time of the people involved, and the cost of training materials.
It takes three to six months for a newly hired candidate who takes on a new role to add value to the company through his or her work. The time after which the value of his or her work exceeds the cost of hiring and deployment is often nine or even 12 months. This shows the level of investment an employer makes when they decide to hire a new employee. By their very nature, these investments are dictated by the need and hope that the costs incurred will pay off, and more than pay off, over time.
If a new employee is hired into the ranks of the sales or customer service department, but it turns out that their work ethic or competence leaves something to be desired, the cost of a poor hire can be added to what we call "missed business opportunities." By this term, we mean the value of contracts with customers that could have been won but did not result in a business relationship with the company due to insufficient effort or, for example, incompetence on the part of the employee. These opportunities also include non-acquired business partners that the employee did not recognize as important to the company.
The best solution is to plan the hiring process and candidate selection procedures so that there is no room for chance. Verification of the applicant's commitment and competence is best done at the very beginning of the hiring process.
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