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The Real Cost of Hiring

How Companies Can Improve Their Complete Process of Hiring


Employees are arguably one of the largest investments a company makes. According to a Society for Human Resource Management (SHRM) study, Total Cost of Workforce (TCOW) was, on an average, nearly 70% of operation expenses. Included in that number, are workforce acquisition costs. This can include hard costs such as job postings, recruitment fees, and any assessment testing involved. But many companies overlook hidden areas of expense such as loss of productivity from a prolonged search, the impact of turnover for hiring the wrong candidate, and a host of over expenses that come with onboarding workers to ensure their success.


The real cost of hiring encompassing an entire process. Like any process, it can be examined to isolate costs, improve outcomes, and increase efficiency. While there are dozens of tools that allow you to calculate the costs of hiring, outlining the entire process can reveal the true cost and ways of reducing it.




Turnover Impacts Hiring…


…and hiring impacts turnover. Turnover is often thought of as the end of an employee’s relationship with a company and more of a function of employee management. In fact, the hiring process is directly tied to turnover. Here’s why: according to the Harvard Business Review, bad hiring decisions account for almost 80% of turnover rates. That tells us that if the hiring process isn’t right, turnover rates will be higher than they need to be.


Turnover rates vary wildly depending on the industry and the types of workers. The national average is 15%, however that can rise to 30%, even well over 250%, for some positions. But the top line isn’t nearly as important as a move downward. Changing turnover rates by a few percentage points can radically impact the TCOW and the cost of hiring since the expenses associated with hiring simply do not have to be repeated as many times.


Reducing turnover should be a major goal of any hiring and onboarding process since it’s the first place to look for major cost savings.




Recruiting


One of the basic foundations of a hiring process is finding people who are qualified and interested in a job. This can be a complex process for high-level positions, but for most hourly positions the costs companies usually associate with hiring are advertising in local newspapers or online. While this method may seem to be budget conscious, it ignores other avenues taken by a staffing agency. For example, Nesco Resource combines advertising, job fairs, multiple online postings, and a database of jobseekers that is constantly refreshed with candidates. Many of these workers have a steady stream of assignments and are proven to be reliable employees for specific types of work. Staffing specialists have often worked with these individuals over a long period of time and know their skillsets, desired schedules, and dependability.


Another important factor in the recruiting process is screening: the process of looking at a pool of potential candidates and filtering out which individuals have the skills, background and are in the pay scale for a particular position. The screening process is often taken for granted in recruiting, but it is vital to reducing the overall cost of hiring. Here’s why: when the unemployment rate is high, so many candidates flood the talent pool that finding the right match can be difficult. Proper candidate screening during these times can help reduce turnover, and increase productivity by ensuring that the right candidate, chosen from many, is placed. In a down economy, candidate pools shrink and staffing specialists often recommend adjusting a screening process to open up the field of candidates.


Employing a staffing agency can streamline the process of screening candidates and adjust it according to circumstance. Ultimately this saves time and money by ensuring that a company isn’t overpaying for employees, but is also remaining competitive with local wage trends. A pool of talent at any given moment can be limited and casting a random net into that pool may or may not garner results. Using a staffing agency is a more targeted approach that can help reduce turnover and mitigate many of the other process costs down the line.



Onboarding

Another cost of hiring that is often overlooked is onboarding.  This can include everything from training and orientation to activating benefits, implementing wage garnishments, paying worker’s compensation and unemployment taxes.  These activities are often absorbed as an internal cost and hidden as part of the hiring process.  However, there is a very real cost to performing these tasks that should be acknowledged as part of the real cost of hiring.


Staffing agencies often include all of these costs in the onboarding process presenting a consolidated fee which accounts for both time spent in the recruitment process and for the process of onboarding an employee.  In addition, a temporary staffing agency is often set up to more efficiently handle these processes particularly if they are in high volumes.


And onboarding doesn’t necessarily end after an employee begins working.  The process continues into the first few days and weeks on the job.  For example, in order to enhance service to clients, reduce turnover, and measure performance, Nesco implemented a survey program that asks 10 simple questions to employees during their onboarding period.  This ensures that these employees are receiving the training they need, their assignment was correctly described, and that safety standards are being met.  This type of information not only gives the company immediate information to act on if necessary, but also helps track what works and what doesn’t at this crucial stage in the hiring process.


Onboarding can have a substantial impact on the total cost of hiring.  For example, safety protocols can be handled by the staffing agency which can save both time and money.  In one instance, Nesco Resource was able to save over $1,700 a month in PPE by more closely examining the onboarding process and the distribution of protective gloves.


These are only a few examples and carefully examining onboarding as a place for streamlining or improving a process can help save money, time, and impact turnover rates.



Loss of Production


One of the greatest hidden costs to hiring is the often unaccounted for: loss of production. The longer a position goes unfulfilled or the longer an onboarding process takes, the more time is taken off of production. Loss of production can be measured in two ways. First there is a direct loss to production if a worker is producing a product. Oftentimes, however, there isn’t a straight line in this accounting. Tasks may fall on other workers to pick up the slack while a hiring and vetting process is continuing, for example.


Another instance where the hiring process causes production to be lost is when a bad hiring decision is made. Not only is there a lack of physical productivity from the employee, but also a monetary loss for the company. One SHRM study shows that a bad hiring decision can cost up to five times that individual’s annual salary. Overall, productivity or quality controls may slip if workers are being asked to take on additional work. Worse still, is the possibility of morale sinking for other workers causing a cascade of turnover.


While loss of production can be very difficult to quantify, the time a position is left open is easier. For example, if your workforce is at 90% capacity for three weeks using process A, but process B can reduce that window to less than a week, isn’t it worth examining? The actual costs may be hard to quantify but the desired outcomes are not. Identifying this choice helps organizations begin to shape hiring process.



Mapping the process


There is no cookie-cutter matrix for the real cost of hiring because every business is different. However, mapping out the process for hiring and affixing costs to each area is an important step in determining what direction is best for the bottom line of your company. As mentioned earlier, cost calculators can be helpful as guides, but they often don’t capture every aspect of the recruiting, hiring, and onboarding process. Also, they don’t identify important elements such as reducing turnover rates and increasing productivity.


With this process map, you can choose which areas to improve, and areas where a staffing agency may be able to help. Finding the right employees is really only one step in a process that could help reduce your workforce acquisition costs.



Looking To Reduce Turnover

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Andrew Deutsch
Executive Vice President, Central Division, Nesco Resource

Deutsch possesses a wealth of progressive management experience in commercial staffing, including a strong background in structuring and implementing staffing specific risk management programs.

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