The Cost of Recruiting Permanent Staff

Covid-19 has thrown a curve ball at businesses large and small. Those that have survived will now face the challenge of continuing survival, perhaps pivoting into some other facet of their business, or riding a resurgence.
Inevitably these businesses will require new skills or re-employing skills and knowledge that were shed to survive.
 
Much will be said about unemployment levels and the number of people seeking work. Many of these people will be highly skilled so how does a business attract and engage and then retain these people. There will be the temptation of many to think that money can be saved by “doing it yourself” however I would like to challenge that supposition and provide you with a tool estimate the real cost of “doing it yourself”.
 
Firstly, I refer to my previous articles on the value of a Flexible workforce in uncertain times and when your business is unsure of how sustainable growth will be or even how certain your current levels will be.  While doing it yourself may very well be the right strategy I would argue that it only applies to the recruitment of Hard skills. E.g.  trades, machine operators, drivers etc where the skills necessary can be easily identified and verified. However, this does not apply where there are soft skills involved e.g. anything that involves customer or client interaction or people management.
 
One thing is certain there will be a plethora of opportunities for people and there will be many looking. Desperation will undoubtedly lead to a propensity to “stretch the truth”, so ascertaining the best candidate for the business will be a challenging task.
 
Recruitment Agencies are well placed to provide you with professional assistance to do this but be sure to choose one that commits to a Professional Code of Behaviour (RCSA members) as these people will provide you with a service that you can rely on. Most of these agencies will also provide you with a guarantee if the final selection leaves your business within a set time. Agencies are constantly in the market seeking people with skills and experience for specific roles but there is always many applicants remaining on their records that never apply for other positions as the agency will be looking for roles on their behalf. Unless your business is a well known or iconic brand and there are few of these your ability to attract the best applicants can be challenging. Agencies represent your agency to candidates who may never have considered applying. On the other hand you will also be inundated with applications in the current scenario and sorting through these applications and responding to each applicant to maintain your brand integrity is much more time consuming than indicated in the template below. Remember also that Agencies provide a neutral avenue for reference checking that doing it yourself may not be the best course of truth. They will also provide police checks and drug testing if relevant.
 
Remember the figures below are indicative only and most likely very conservative. I have seen UK research that indicates that applications for some positions have increased by 1360%. Whilst this may be somewhat larger than in Aust and NZ the numbers will increase exponentially along with unemployment levels when the wage subsidies finish.  If using the template be realistic in your assessment of your cost as getting this wrong can be very expensive. Employment Laws are there to protect employees NOT employers so it can be very expensive to correct a poor hire. The figures are also for a low to mid-level position and accordingly you should factor in an increase in time taken to hire which will increase the bottom-line cost by 2 to 3 times.
 
Finally. if building a house, I would look for a Certified Builder who I can be confident will adhere to all the compliances necessary to build a house, probably a Member of the Master Builders Association.  When recruiting it makes sense to also engage an “expert/professional” to do the recruiting for you and one which is a member of a Professional body such as the RCSA.
 
Calculating the Cost of Recruiting Permanent Staff
Confirming Job Description/Employer Specification: To consult with Divisional/Line management, and prepare formal job spec.
Allow 1 hour of Executive time *see notes 
 
$173.10 
Prepare evaluation criteria and selection criteria guidelines.
Allow 1 hour of Executive time                                            
 
$173.10 
Preparing Advertisement: Writing advertisement and placing in appropriate newspapers. Allow 1 hour of Executive time                

$173.10 
Advertising Cost: Placing Advertisements on Jobsites Seek/Trade ($200 per site-actual cost-each-assume 1 site only).               

$200.00
Advertising Response: Handling all advertisement response. Telephone response to a typical advertisement will vary, say 50 calls.
Allow 5 mins per call, total time = say 4 hours of Executive time. 
     


(A)$692.40
Resumes: Allow minimum 10 mins per resume and up to 25 resumes. Total time = say 4 hours of Executive time.
(Time includes selection down to required interview numbers)


(B)$692.40
First Interview: Allow 6 candidates for Interview,1 hour per candidate=6 Hours of Executive time

$1,038.60
Consultation: Allow 2 Hours to discuss with management and agree on short-listed candidates for second interview.
2 Management involved (at $150 per hour) + executive time       


$600.00
Second Interview: Allow 3 candidates for Interview, 2 hours per candidate = 6 hours. 2 Management involved (at $150 per hour)

$1,800.00
Consultation/Reference Checking: Consultation/discussion following interviews and reference checking. Minimum 2 reference checks per candidate. Allow 2 hours (time to track down and follow up and discuss). 2 hours x 2 managers


$600.00
Acceptance /Rejections: Prepare offer, and all paperwork. Prepare rejection letters for 50 unsuccessful candidates. Allow 1 Hour of management time to finalise offer details and paperwork


$150.00
Allow 4 hours to prepare and produce letters to unsuccessful candidates. (Support Staff time – charged at $84 per hour)

$336.00
Total
$ 6,628.70
Allow Replacement factor – 1 in 8 staff turnovers in first 3 months, requiring the exercise to be repeated. (Most Recruitment Companies provide a replacement Guarantee) Therefore allow 15-17.0% of total cost                                         
 
$994.30 - $1,126.88

Total Expenditure     

$7,623.00-$7,755.58
Note: Executive time costed at $57.70 per hour ($120,000 pa @ 40-hour week.)
Management time at
$50.00 per hour ($104,000 pa @ 40-hour week).
Support staff at
$28.00 per hour ($58,240 pa @40-hour week).
This is factored by 3x to 
cover all business overheads, support staff supporting them and the cost of running the business. This is a standard costing factor which is considered conservative as real cost likely to be closer to 3.5 times. In this example, using junior executives it is a minimum of $7,623.00.
The above costs do not consider the cost to the business lost due to executive and management time spent on recruiting and not on a executives’ core business responsibility. i.e. the opportunity cost.
The above figures are considered conservative and representative of management who are experienced with recruitment. Times required would need to be adjusted to reflect greater time taken if person involved is new to the recruitment process.
 
 



 
 

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