Each new hire, whether good or bad, joins the workforce after an extensive recruiting and onboarding process that consumes time, resources, and money. In a situation like a global health crisis where businesses need to optimize budgets effectively, poor hiring practices can lead to costly inefficiencies.
The Society for Human Resource Management reveals that hiring costs are progressively rising and so making it much harder for businesses without agile recruitment practices to manage their expenses. SHRM finds that employment costs (including recruitment) are surging every quarter, driving up the overall cost of labor and ultimately eating into productivity.
The pandemic has triggered wide-ranging transformations in the business world and, in parallel, has been a catalyst for new business models and workforce formats. However, one thing, despite all the disruption, has remained constant: businesses still need employees. More appropriately, businesses need dedicated employees that stick around for the long run.
Onboarding a bad hire like a toxic employee or an unmotivated slacker can be an expensive proposition, even beyond the implications of lost productivity and degradation of workplace infrastructure! Read on to discover more.
Hiring Costs – How They Work
Hiring and onboarding are crucial business functions. While they don’t directly generate revenue, they support business units that do by acquiring new workers appropriately in line with company-wide talent acquisition strategies. However, the process through this acquisition is performed, like any other business process, involves leveraging several business resources.
Most employers make the mistake of thinking of these costs simply, such as in terms of an addition to their payroll expenses. While employee compensation and benefits (even for a single new worker) are undoubtedly significant, the cost can accumulate across the board. For example:
- Recruitment efforts, employee training, benefits, incentives, etc. all add to recruiting expenses.
- Health benefits, insurance, and other ancillary costs add a further strain.
- Maintaining a full-time recruitment team in-house is a significant expense whether they make successful hires or not.
- The use of digital hiring tools, recruitment applications, and software maintenance also costs money.
- The initial integration period can impact both individual and team productivity and depletes the output generated.
- A bad hire can add further costs in terms of training, performance improvement plans, disciplinary action, and workplace conflicts.
- An employee resigning or being terminated renders all of the above as “sunken” costs.
- Employee turnover usually creates bottlenecks in the staffing process until a replacement can be recruited, further impacting productivity and output.
- A bad hire, especially in a customer-facing role, can significantly degrade business reputation, customer acquisition, and retention, and even potentially trigger litigation.
All of these costs, when accumulated, create a figure that is often a multiple of the salary a business pays to its employee.
How Rising Hiring Costs Threaten Businesses
Regardless of different hiring models, direct hiring or centralized recruitment, advantages and disadvantages of various approaches, or exploring new hiring tech, hiring costs will always be an unavoidable business consideration. As such, the focus needs to be on strategically managing and optimizing these costs so that they remain within a tolerable, expected threshold.
How should employers do this? Before discussing the various ways to optimize recruiting costs, it is more pertinent to examine the threat that inefficient hiring practices and mismanaged workforces present, including:
- Inefficient hiring processes imply an equally inefficient use of hiring budgets and resources. This is a tremendous financial liability to smaller organizations. However, even large-scale enterprises with more financial stability should be equally wary, as inefficiency is synonymous with a waste of resources, particularly liquid assets.
- Slower turnaround times to fill open roles imply a poor use of business resources or problems with resource deployment. Even if HR eventually does manage to fill a vacant role, the interim period will likely lead to bottlenecks, knowledge gaps, and ultimately lost revenue relevant to the position. Slower turnaround times, therefore, ultimately impact profitability.
- Non-competitive HR practices also threaten businesses simply because they cannot keep up with more aggressive recruiters working with other firms. In effect, this doesn’t just cause businesses to lose out on world-class talent, but also on the value they bring to the workplace and their role.
- Ineffective benefits structures make it costlier for businesses to acquire and retain new employees. This makes it much harder for recruiters to present an appealing workplace to applicants. It also necessarily involves more effort in terms of time and money expended to source and screen the desired candidates.
The Bottom Line
The inevitable result of ineffective in-house recruitment and inefficient utilization of hiring budgets is a threat to business continuity and sustainability. Most in-house recruiters, unfortunately, will always struggle to find a balance between hiring effectiveness and hiring efficiency.
Recruitment will always remain a crucial aspect of business and will therefore continue to require significant resources. Businesses need to explore the most obvious solution: lowering the costs incurred by increasing hiring success and retention rates.
The latter part typically depends on the employer, the culture they offer, and how much value they assign to things like the importance of employee motivation. Likewise, most businesses see an immediate supplemental benefit to partnerships with a specialized recruiting services firm.
A third-party like CGT Staffing, a Pittsburgh staffing solutions provider, offers years of expertise, deep industry knowledge, and a much deeper talent pool than most in-house recruiters. Leveraging these advantages can help businesses drive down recruiting costs by increasing the effectiveness of every dollar spent on recruitment.