Studies predict that every time a business replaces a salaried employee, it can cost the organisation up to 10 times the salary of the employee. For an executive hire, this can be much more.

calculating the ‘real’ cost of hiring an employee

What makes it so hard to predict the true cost of employee turnover is that there are many intangible, and often un-tracked, costs associated with employee turnover. So, what is the real cost of losing an employee? Costs of hiring an employee can be broken down as given below:

Actual cash pay-out: This component has a real cash outflow and includes costs associated with sourcing interviewing, screening, and hiring. 

On boarding cost:On boarding is a critical part of recruitment. According to a research, 4% of employees leave an organisation owing to bad first day. On-boarding a new person include training and management time. 

Opportunity cost: This starts accruing right from the time when a position falls vacant though the hiring process till the time the recruited person becomes fully productive for the company. It includes lost productivity, customer service and errors (new employees take longer and are often less adept at solving problems), lost engagement of other employees affected negatively by high turnover and the cultural impact that pauses employees to ask "why?" One of the reasons the real cost of employee turnover is an unknown, is because most companies do not have systems in place to track exit costs and cost of recruiting, interviewing, orientation and training, lost productivity, potential customer dissatisfaction, lost expertise and business, and administration. It calls for collaboration among departments (HR, Finance, Operations) to find ways to measure these costs and create reporting mechanisms.

finding the 'TrueFit' candidate

Finding the right fit is critical. This includes ensuring the recruitment priorities are in place - a well-formed strategy to attract active and passive talent, and relentless focus on communicating a distinguished employer brand.

Beyond the job description and diligent assessment of the individual’s behavioral fit to the company culture (that ensure outcomes of higher performance, better job satisfaction and employee commitment), there is another critical dimension that needs careful attention - the alignment to the supervisor and team.

The alignment with the job, boss and company culture ensures that the employee can perform productively, as individual, as part of a team and in working under specific managers.

what could pay off in optimising cost of hire

It is important to understand that cost and speed of hiring are not the most efficient hiring metrics. Changing to quality of hire as the ultimate effectiveness metric will yield much higher benefits. This is best achieved by developing a strong employer brand. From an organisational perspective, the right ‘wallet share’ or apportionment of budgets is crucial. Recruitment teams need to partner with business, end to end, as their trusted talent advisor to ensure they decode the dna of right talent.

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about the author
yashab giri new
yashab giri new

yeshab giri

chief commercial officer - staffing & RT professionals

yeshab is responsible for leading the development and expansion of randstad India’s value added staffing services which currently encompass field force, engineering and technology roles.