Employee recruitment costs can increase if not managed properly. This can worsen the performance assessment of the HR team and hurt the company’s operational costs.
In fact, the purpose of recruiting employees is as a way to maintain company operations and help it grow.
Therefore, as the HR division , you must pay more attention to budgeting or budgeting for the HR team, starting from hiring new employees to retaining employees.
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There are several strategies that the HR team can apply in analyzing and considering the HR team’s budget . In this case, especially in the employee recruitment budget, that is by calculating the cost per employee hire .
In the following, Mekari will discuss what cost per hire is and the components of the cost of hiring that are calculated in the cost per hire .
What is Cost Per Hire?
Cost per hire is a metric component that is used as a reference for calculating employee recruitment costs. This cost per hire is the component most commonly used by the HRD team to measure the team’s expenses and budget.
Being able to know and measure how much the cost per hire is considered quite important because in general it can optimize your company’s recruitment process. In addition, measuring cost per hire can also be used as a yardstick in determining employee recruitment budgets, managing expenses, and measuring employee performance in recruiter or HR teams.
Cost per hire measurement is calculated starting from the screening stage, the selection stage, to the on-boarding stage for the total employees selected in one period. The simple formula for calculating cost per hire is more or less as follows:
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Example of How to Calculate Cost Per Hire
To calculate it is actually quite easy and simple. All you have to do is use the calculation formula as shown above in one employee recruitment period. Then the next step is to calculate the cost per hire as follows:
- You record expenses for recruiting new employees, starting from the selection process to on-boarding and training .
- Add up your external costs and internal costs on all new hires in a given period.
- Then, divide the resulting number by the total number of employees in the same period.
Here’s an example:
Company A will conduct mass hiring to fill the needs of workers/employees who are currently vacant within the company. The recruitment process will last for 3 months and will also take part in a job fair that will be held in the city center. The expenses or hiring costs for carrying out the mass hiring process are:
- Salary, allowances and overtime pay for the HR team for 3 months of IDR 175,000,000.00
- Office facilities (Wifi, ATK, and so on) IDR 40,000,000.00
- Transportation allowance of IDR 4,500,000.00
- Advertising costs IDR 35,000,000.00
- Health test IDR 15,000,000.00
- Employee recruitment agency IDR 55,000,000.00
- On-boarding and training costs IDR 5,500,000.00
Then, after the mass hiring process was completed, the company recruited 30 new employees who had passed the on-boarding and training stages. Then, how much is the employee recruitment fee and company A’s cost per hire during the recruitment process?
Answer:
Cost per hire formula : (Total internal costs + total external costs)l : number of recent recruits
(IDR 225,000,000.00 + IDR 85,000,000.00) : 30
Cost per hire = Rp 11.000.000,00
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Employee Recruitment Cost Components
In terms of expenses or hiring costs during the employee recruitment period, there are various components that need to be considered.
Based on the cost per hire calculation formula above, it can be seen that the cost components of employee recruitment are divided into two, namely internal costs and external costs.
You should understand what these cost components are because they can help reconstruct the budgeting for employee recruitment costs so that they are more optimal and economical.
Internal Costs
Internal costs are the costs of the employee recruitment process used within the company or organization of the HR team. Overall the components included in the internal hiring cost are:
Salary or Bonus for Recruitment Team
When the recruitment process begins, of course there are many structures in the HR team that join and work together. Starting from the head of the recruitment division, supervisors, to staff recruiters .
The salary system provided depends on the amount of responsibility carried out, then there are also other costs such as benefits, target bonuses, and overtime pay if employees get additional working hours outside of working hours.
Office Facilities
Office facilities are often used by the HR team to recruit new employees. Starting from the psychological test stage, English test, interview, to the on-boarding process .
In addition, if the recruitment process is done online . The HR team can use work facilities in the office that support the process, such as laptops and wifi networks.
Transportation
Transportation expenses are included in the company’s internal costs if the recruitment process uses a different strategy. Like if a company recruits in a job fair and campus hiring .
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HR Support Software
Currently, many companies are using online HR software to support the management of the new employee recruitment process. This will simplify the recruitment process so that it runs more effectively and can be done anywhere and anytime.
External Costs
In contrast to internal costs, external costs are expenses for employee recruitment or hiring costs that come from outside the company or use services outside the company’s internal. The following are the external cost components:
Employee Recruitment Agency Services
HR teams who lack the resources to find candidates will usually use the services of an employee recruitment agency as a third party. This is in order to reduce the team’s workload, avoid burnout , and avoid human error .
The choice of needs for employee recruitment agencies also varies in form. Some process it for the outsourced section , some only focus on talent hunting / talent headhunters , there are also employee recruitment agencies that do almost the entire selection process
Then the candidate data will be forwarded from the employee recruitment agency to the HR team to then proceed to the on-boarding process .
Hiring Advertising Fees
In carrying out the recruitment process, sometimes companies also need a place to advertise available positions to the general public. Social media and job hiring platforms are media that you can use.
This is necessary in order to increase online presence and help find suitable candidates with qualifications quickly and precisely.
Medical check up
Some companies sometimes also ask candidates to do a health check-up session first, or what is commonly called a medical check-up. This is one of the stages in the recruitment process that is also commonly found.
Usually, companies will work with health clinics or hospitals because rarely does anyone have this field specifically within the company. Therefore, the cost of medical tests is included in the external costs of employee recruitment.
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How to Minimize Employee Recruitment Costs
After you know how to calculate the cost per hire and the components of employee recruitment costs. There are several strategies that can minimize the cost of effective employee recruitment and that you can apply in your company.
This is quite important considering the expenses or hiring costs which are quite large for one new employee who enters. The swelling cost of the employee recruitment process can also interfere with the assessment of the HR team in the eyes of company management.
Here are some effective strategies you can employ:
- Take advantage of talent pools
- Optimizing employee referral programs
- Optimizing company social media
- Using HRIS software that can help the employee recruitment process
- Create an effective recruitment ad
- Analyze the budget and hiring costs optimally
- Recording or keeping records of expenses
That’s a complete review of what it is and how to calculate the cost per hire as well as the cost components of employee recruitment.