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Competition among companies is ever-present, and talented employees are one of the most highly-coveted resources on the market.
This makes it all the more necessary to seek the right person for the job given that they are important investments in your business. Understanding your hiring expenses can help in reducing impractical costs to focus on increasing the revenue and profitability of your business.
That being said, the process of hiring and retaining employees can be daunting, especially with the current pandemic.
Paying employee salaries is also just a small aspect of hiring. When you take into account the time and cost for recruiting, onboarding, training and benefits, the true cost of hiring starts to add up. This emphasises the costs of a bad hire, with data from Harvard Business Review reporting that 23% of new hires turn over even before their first year is up.
Hiring is definitely one of your biggest expenditures. Let’s run down some general hiring costs that your business may have.
Recruiting costs
Recruiting qualified employees takes time, patience and money. If you are a small business, having an internal hiring team is most likely unfeasible as it only eats up finances that could be allocated to other areas.
Sure, you can always count on an external hiring team to sieve out potential candidates, but their services do not necessarily come cheap. Let’s assume that your company hires a recruiting firm. They typically charge their clients in 2 ways – through a retained and contingency structure.
Under the retained structure, you pay an upfront, guaranteed fee for their services which also allows them exclusive access to your job listings. On the other hand, the contingency structure is performance-based and recruiting firms are only paid when they successfully recruit an employee for your company.
Generally, their services are anywhere from 15% to 30% of the employee’s annual salary on top of Central Provident Fund (CPF) contributions.
Nevertheless, despite this costly and time-consuming process, recruiting quality top workers should be one of your priorities because skimping could backfire.
On-boarding and Training costs
The onboarding process is the period where an employee joins the company and successfully adapts to their new role. Costs involved in onboarding may include equipment, tools and working hours to train the new employee.
In a 2019 study, companies spend an average of $1,286 annually on just the training costs per employee alone.
Effective onboarding can help raise employee retention by 25%, while lost productivity can end up costing between 1% to 2.5% of total revenues and may have a negative effect on your organisational performance.
As such, investing in your onboarding and training programs could help save time and effort on a new hire. Especially in industries with high turnover, solutions such as Inside can also help to overcome persistent challenges of efficiently onboarding and training shift workers by introducing integrated Academy and training features that supplement your hiring.
Salary and benefits costs
On top of paying monthly salaries, employers in Singapore are required to comply with relevant mandatory statutory contributions for their employees, such as making CPF contributions for their Singapore citizens or permanent resident employees.
And if you are a business that employs a foreigner, you will additionally have to pay a monthly Foreign Worker’s levy.
Bear in mind that the monthly CPF contribution rate varies according to the age band of the employee. You may refer to the official CPF website for more information.
Businesses also often offer employee benefits to retain employees, but these benefits come at a cost. According to Joe Hadzima, a senior lecturer at MIT, an employee’s salary including benefits usually ranges between 1.25 to 1.40 times the base salary. As time goes by, salaries are expected to increase and will definitely require changes to your budget.
Now let’s imagine this situation: Hiring an HR manager to be on your team.
According to Glassdoor, the average salary of an HR manager is $5,612 per month, with an annual salary of about $67,000. That costs you $84-$94K including benefits in total.
Add in roughly another $1,300 in training costs, and the associated costs with onboarding and a transitional period for them to settle in.
Finally, add in $14-$28K for recruiting costs, assuming that you engaged a recruiter firm based on a contingency structure.
That will total up to an estimated amount of $123,000 as your total hiring cost, presuming that the employee stays with you long enough to break even.
Conclusion
Companies are always on the lookout for talents, especially when there is a growing demand for digital talents and skillsets. Digital hiring platforms with seamless features to effectively train and retain employees are good considerations to avoid losing time and money on hiring over and over again.
Inside is your comprehensive solution for reshaping the landscape of workforce management in the hospitality industry. In a world where operations never sleep, Inside not only simplifies scheduling but transforms the entire employee experience through Smart Scheduling, the dynamic Employee Hub, and cutting-edge features for insightful dashboarding and employee sentiment analysis.
