The Cost of Hiring vs The Cost of Slow Expansion

As a new business or existing owner “people” expenses is one of the largest budgets you will need to manage. However, can every business afford to hire employees? And, what happens to your business if you choose not to hire employees?

Experience, as well as studies, consistently state that the lack of hiring will cost businesses much more in the long run. Let’s examine the different talent costs to help you plan and compare them to the cost of not hiring employees at all.

If you are a small to medium size business owner who did the recruiting yourself, the average annual ranges from $1,000 to $7,000 per person you hire. Are you surprised it can cost you this much? Factors you need to take into account are the following :

The wage or salary of the manager doing this recruiting, such as the department manager or human resources manager: $75,000 per year for a manager / 52 weeks =$1,442.30 per week. $1,442.30 / 40 hours per week = $36.05 per hour

It takes an average of 4 hours to create and post a job listing plus approximately 16 hours to review resumes for this one posting. This is spread out based on when applicants apply and when you review the resumes.

Most job postings obtain approximately 150 to 300 resumes per role. Next, you narrow down your pool and use 16 hours for pre-screening interviewing. Pre-screening interviews tend to be 30-45mins per interview. Lastly, you must account for the administration time such as reviewing your interview notes, ranking applicants, which could take up another four hours. Finally is background checks, allow yourself 2 hours to do this.

Your total amount of time spent per posting is about 42 hours. This calculation also assumes you are not posting on a site that requires specific software or fees. $36.05 x 42 hours = $1,514.10. This is a conservative estimate per position also assuming everything runs smoothly, which is often not the case.

It would take you at minimum a full week’s work time to find a suitable candidate. You also need to take into consideration what happens to your tasks and duties. Your own work will have to be put on hold, or you will need to work double time that week.

If you hire a recruitment agency, you would be paying “the recruiter’s wage”, agency fees, advertising costs, maybe even career fair costs, and lastly, background checks. These costs range from $10,000 to $30,000 which are charged as a percentage of the position’s salary. For individual hiring (compared to bulk hiring) the standard fees are 18% to 24% of the person’s salary.

If you choose to wait to hire there is a vast array of things you should reflect on to determine if you are making the right decision for you and your business.

Do you have the knowledge, skills and abilities to keep your business profitable as a one-person show? You may not have the skills and knowledge for all the roles your business needs.

You also add stress to yourself and those around you (at work and home):

• No succession planning

• Lack of stability

• Damage on personal health from overworking

• The frustration of other business partners or employees

• Reduction in your own and others’ morale

If you have a few employees or a partner, those people become disgruntled; they might start looking for other jobs, in which case you will run the risk of vital knowledge being lost.

Potentially, clients will feel uncertain about your business and take their business elsewhere or will not recommend your product/services.

• Lack of general sales & growth opportunities

• Not staying competitive in the market

• The quality of products or services run the risk of dropping as you can’t keep up with the demand

You also need to consider the needs of your business to grow. Is it to overcome a problem such as falling sales, smaller margins, or perhaps you are trying to respond to competition?

On the flip side, are you interested in expanding because you are succeeding and want to keep going?

Although it is difficult to add substantial costs to these situations, what is essential is to understand these examples are not once-off costs like hiring. These are damaging costs which infiltrate your culture, brand and they are long-lasting.

In conclusion, it is much easier and cheaper, in the long run, to have a proactive plan and adjust as needed than it is to be reactive and to recover.

Therefore, reviewing your annual budget to include hiring fees in your common year plan is a recommended best practice. If you are very new or unsure of how to plan a recruitment strategy, you can start by adding 15-20% of an employee’s salary to your budget. Once you become more familiar with hiring and the process, you will save money on some of the hiring steps, like creating a job posting. You can reuse postings for same positions, or templates you can purchase or create that will help reduce your administration time.

Start hiring on a contract basis if you are nervous about not being able to pay this new employee(s) salary. Start with a one year contract and provide a compensation package with a combination of base wage plus an added incentive bonus. At the end of the one year, you can choose to make the role permanent if everything goes well.

The sooner you have employees, the sooner they can help you expand and bring more experience and revenue to the table.

Josée Larocque-Patton assists organizations to develop their people and train their leaders. She guides leaders when their employees are not following procedures and policies and act as a consultant when organizations experience legislative infractions.