The High Cost of Bringing on New Employees
Several months ago, I took on an assignment that began with evaluating the senior leadership team of the company. The senior executives wanted to know if they had the right people on the team, in the right roles. Seemed like a reasonable question to ask, and with all my recruiting and interviewing background it was a natural fit for me. Without going into the whole story, what became apparent was that several of the leadership team needed to be ‘moved off the bus’. While it was absolutely the right decision to terminate these leaders, what organizations often forget is the high cost of bringing on new employees.
Let me first state that after working with this company to hire two new people, I remember why I left the recruiting business. Hiring is a terrible job. Sifting through resumes, conducting interviews, arranging second level interviews, follow up and feedback from both the company officials and the candidates, keeping candidates interested between interviews, reference checking, closing both sides on compensation…it’s not only time consuming, it’s often a feat to keep the balls in the air and do it well. Even if you are good at interviewing, which most people aren’t, it’s challenging to go through all the steps necessary to ensure you are making an informed hiring decision.
This isn’t an article about the cost of turnover, it’s an article about the actual costs of bringing on a new employee. I want to examine the hard costs, such as recruiting costs, and the often overlooked but real costs that go into hiring.
What are the hard dollar costs?
- Recruitment agency fees, if you use one.
- Advertising fees.
- Background check fees.
- Time human resources staff and managers spend reviewing resumes and interviewing. This has two components. The actual time they spend interviewing (take their annual salary, divide by 2080 — 52 weeks times 40 hours per week and you come up with their hourly salary). Multiply their hourly salary rate by the number of hours spent interviewing and you have a hard dollar cost. The second component, loss of productivity costs, is harder to measure. For every hour a manager spends interviewing it means they aren’t doing something else that is important to the company.
- Overtime costs if you have to pay overtime to current staff or consultants to fill in the gap.
- Compensation may be higher than the employee who left.
This number can be a big number once you sit down and calculate it.
There are other costs, however, that are not so easy to see and calculate. Even though these are not always easy to evaluate, don’t assume there is no cost, because there is.
- Current staff unhappiness and fears. Everyone understands their colleagues may come and go, it’s a natural part of the growth of any company. However, when a company, like my client, terminates several people at the senior level, it is naturally going to bring about fear and in some cases unhappiness. What’s the cost? Lost productivity costs while they gossip among themselves and time you have to spend reassuring them, handling concerns, and more. There is no way to determine how their unhappiness and fear impacts their personal productivity. Rest assured there is a cost to you though.
- Onboarding costs. Hard costs related to computers, phones, supplies, etc., are easy to calculate. Time spent by staff to handle onboarding paperwork and working with the new employee on setting up their computer, going over procedures and process, and introducing them around the company can also be calculated in absolute dollar amounts. There are hidden costs to onboarding as well. Consider areas such as ramp-up time for the new hire, time taken to train and educate the new employee, and loss of productivity from team members during this transition.
- Team members’ craziness. Any time someone new joins a team there is a period of uncertainty and when hiring a new manager this escalates. There is a period I refer to as ‘the team member’s craziness period’. What happens during this period? Sometimes the team begins to politic with the new manager, attempting to get them on their side about whatever they feel is important. You might experience them spending time lamenting about the loss of the previous team member or manager, even when they previously had negative things to say about that team member. A new manager may find a line of people at their door sharing information under the guise of helping the company.
I’m not suggesting when you have poor performers that you should continue to keep them on your team, you shouldn’t. If they aren’t performing and you have tried everything to turn them around they gotta go. I just want you to be prepared for the costs of hiring someone new. As leaders in an organization, we often forget about the hidden costs of hiring, and those can be costly in terms of lost productivity. There isn’t much you can do about most of these costs. You can, however, prepare the team for the new addition to the team, what they can expect in terms of feelings and emotions about this new team member, and educate everyone involved with what it will take in terms of time and support to get them up to speed.
For you as the leader/executive, you must also remember that hiring someone new, even if it was absolutely the right decision to move someone off the bus, takes time, patience, and has costs associated with it. Don’t overlook any of these as you approach the hiring process.
Tired of the same old culture problems within your organization? Take thirty minutes and talk with Linda about how she has helped other companies move past the types of problems plaguing your firm.
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