What’s the Real Cost of a New-Hire?

Finding yourself in need of a new-hire is generally a good sign as it indicates that your business is developing and expanding, and that your products and/or services are in demand. But recruitment is hardly an area of transparency. There are many hidden costs lurking beneath the surface, costs which tend to quickly add up, and may have the effect of threatening the financial stability you have worked hard to achieve.

Permanent workers are a costly investment

It is a mistake to think that hiring a new permanent member of staff will incur costs only in terms of the salary they are paid. There are many costs incurred by a new-hire, and the salary you provide them, whilst the largest of these expenses, is far from the only one that you must factor into your financial estimations when hiring.

There are recruitment costs, training costs, and many more to take into account, and regardless of the sector in which your company operates, these costs will run into the thousands of pounds, with small businesses employing one or two workers, and companies employing highly skilled high-end staff, incurring the heftiest costs of all.

Recruitment costs

Finding the right person to hire is a costly affair and can easily run into the tens of thousands of pounds for companies in need of management level or highly skilled white collar employees. The recruitment costs incurred by a business conducting their staffing efforts internally (as opposed to using recruitment agency services) would entail at least the following:

  • Advertisement costs
  • Recruiter’s time costs spent reviewing resumes, calling candidates, interviewing candidates, and performing other recruitment related tasks
  • The cost of background checks and drug screening tests
  • Costs incurred by pre-employment assessment testing

These costs partly explain why many UK small businesses are so reluctant to take on new-hires. Commenting on a report jointly published by the Centre for Economics and Business Research (CEBR) and the UK’s Federation of Small Business, Jason Hesse wrote in Forbes last year that, “On average, the index calculates, a business with one employee and one owner faces an average employment cost of £35,500 per worker.”

This is a significant amount of money for any small business, and it serves to highlight the disparity between hiring as a small business and hiring as a large company. The cost incurred by a typical company with 20 – 49 employees was £25,100, which is roughly a third less than that of a small business with one owner and one worker.

Generally speaking, hiring becomes more cost-effective as time goes by and the company grows. Whilst as much as 20 percent of the total cost of a company’s first-hire goes to National Insurance contributions and tax, this percentage tends to taper off as more employees are hired, with a greater proportion of total employment costs progressively going towards employee wages rather than hiring overheads.

Here are a few key statistics from the abovementioned CEBR report.

  • 1% of all employment costs incurred by the typical small business were non-wage expenses
  • 7% of all employment costs went to National Insurance contributions for the typical small business
  • 1% of all non-wage costs incurred by small businesses went to general employee administration
  • 1% of all small business non-wage costs were allocated to payroll processing

These are important statistics that drag into the spotlight the expenses which small businesses stand to incur as a result of taking on new employees.

Costs incurred by training new employees

Depending on the role in question, after the cost of recruitment the next greatest expense (not including wages) is that of training new-hires. Training, although highly beneficial for any business entity when implemented intelligently, is a major expense, and as many business owners have come to realise, this is where the costs of a new-hire can really start to add up.

Additionally, this trend may help to explain why small businesses are increasingly reluctant to provide new-hires with the training they require to perform to optimum levels. “… the amount spent on training has fallen by £2.5 billion since 2011”, it is stated in the UK Commission’s Employer Skills Survey 2013: UK Results.

Casual vs permanent workers

An option presented to employers with regard to reducing the overall cost of new-hire, is to go through a specialised recruitment agency and hire workers on a casual basis when their services are required. This kind of arrangement is not feasible in all workplaces, but it is an option for employers to consider, and it is one that has been found to work particularly well for certain positions, usually positions in which manual or relatively unskilled labour is required.

But there are a number of issues and potential problems associated with taking on casual staff as opposed to investing in a permanent new-hire, such as the frequently cited trend in which casual employees tend to take a casual approach to work as opposed to working like they have a stake in the success of the company. Fulltime employees tend to work like company stakeholders as a result of their reliance upon the financial success of their employer for a steady and reliable source of income.

Outsourcing

An excellent option for businesses of all sizes, the option of outsourcing certain tasks as an alternative to taking on new-hires is one that you might like to consider. There are many tasks that you can comfortably outsource to freelancers and established service providers, and by doing so you can reduce the number of new-hires you need to advertise for, interview, screen and test, train, provide with a fulltime salary, and make National Insurance contributions on behalf of.

Telephone answering services like message taking and overflow call handling are processes which you can confidently outsource to the Message Direct team at our modern Dorset call centre. Not only can you successfully avoid new-hire overheads, but you are also empowered to make a more professional impression on callers, a prominent reason for utilising professional telephone answering services.

 

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