What is Cost-Per-Hire?

Cost-per-hire is a term that is used by people in human resources to describe the average costs associated with locating and recruiting new employees. Tracking these costs can help businesses stay within their budgets, and it is especially important for small businesses and those that are operating on limited funds. But just how does one go about calculating these costs and what should be included? The following information can answer these questions as well as explain how to reduce costs related to hiring if necessary.

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Formula for Calculating Average Cost-Per-Hire

Students who are working towards a human resources degree will learn that there is a standard formula that has been established to calculate average cost-per-hire. This formula was carefully designed by the Society for Human Resource Management and the American National Standards Institute, and it is the most effective method today for calculating these costs. It is actually a quite straightforward formula, and to use it, human resources professionals simply need to add together the total amounts of internal and external recruiting costs for a specific period and divide the resulting figure by the total number of persons who were actually hired by the company during the same period.

Items to Include in Calculating Costs

The items that will need to be included when calculating average costs-per-hire may vary from one company to another. This is because organizations may choose to use differing recruitment methods and platforms. A good rule to follow when determining what should be included in these calculations is to include any types of payments that are associated with locating and hiring employees. Some examples of the things that are often included in the calculations of average cost-per-hire are as follows:

  • Recruiting Officers’ Salaries
  • Costs Related to Staffing Firms or Employment Agencies
  • Referral Programs
  • Advertising Costs and Job Board Fees
  • Background Check Services
  • Pre-Employment Testing Costs
  • Costs Related to Job Fairs

How to Reduce Average Costs-Per-Hire

Learning how to reduce average cost-per-hire is a skill that every graduate with a human resources degree should possess. There are several ways to keep average hiring costs to a minimum, and one great method is to consider using cheaper recruitment platforms. Instead of spending large amounts of money on newspaper advertising, businesses may want to consider recruiting new employees through such platforms as LinkedIn or Facebook. Another great way to keep these costs down is to use an internal recruiting officer rather than outside recruitment services or employment agencies. Taking advantage of campus job fairs can help reduce recruitment-related costs as well.

One important aspect of human resources is staying within budget when it comes to employee recruitment activities. As described in the sections above, persons working towards a human resources degree will need to learn what cost-per-hire is, how to calculate it, and how to reduce it if necessary.