As we discussed recruiting in the last two posts, a few readers posed questions over the average cost for hiring someone new. As human resource professionals or managers we regularly make the comment that it is very costly to lose and replace people. Although most of us believe this, rarely do we know the exact combination of time and money that it takes to recruit, select, and on-board someone new. According to the Employment Policy Foundation, a Washington, D.C.-based research group, average turnover costs reached $13,355 per full-time private-sector worker in 2004. More recent studies have found that 25 percent of the current employees pay is a good low end predictor for lower level positions. As would be expected, professional positions possess a higher replacement cost at approximately 150 percent of current salary. Finally, executives can reach as high as 2000 percent of annual salary. The variation is due to the differences in the cost of recruiting, selecting, training, and lost productivity at each level of the organization.
Figure 1 is based on 2010 SHRM data and captures the median cost of the average hire in all industries, private sector, and public sector. These numbers focus on the tangible cost of recruiting and hiring: advertising, any agency fees, travel for interviewing, relocation, and recruiter fees. As an organization grows in size, the cost of hiring increases due to the need for dedicated staff, larger geographical searches, and use of more sophisticated tools and technologies. The public sector has a much steeper increase in costs in organizations of 500 employees or more and then plateaus in organizations of a 1,000 employees more. The private cost exceeds the public in large organizations and continues to grow. The median cost in large organizations is approximately $3,500 per hire.
Figure 2 combines the tangible and intangible costs per hire based on HCS data from 2010. The primary intangible costs include the lost productivity from the recruiting staff and the time it takes for the new employee to reach full productivity. The progression is fairly regular across all groups. The private sector results are slightly higher due to higher pay levels.
The major things to keep in mind are:
- It is costly replace employees;
- Tangible costs are approximately $3,500 per hire;
- Total costs per hire is approximately $30,000 for the average employee; and
- Costs increase as the level of the position increases.