HR · 11 April 2018

REVEALED: The secret costs of replacing your staff

On average 118 people apply for a given job, research shows.

It is important for small businesses, especially when on a tight budget, to know the cost of replacing staff. According to small business accountant, Accounts and Legal, the average employee costs UK SMEs £11,000 to replace.

For businesses to thrive in today’s economy, it is vital to find the best employees. Top talent is especially hard to find when competing against larger companies with bigger budgets.

This is a huge hidden cost for an employer especially if they are in an industry with a high staff turnover.

Do you use a recruiter or do you D.I.Y? One big misconception is that using your own time is the more affordable option.

However, if you value your own time at £100 per hour, the cost of personally recruiting new staff racks up quickly.

If you sourced the talent yourself and spent 42.5 hours recruiting – you’re looking at a cost of £4,000 based on this price.

The average UK salary is £27,721 and a recruiter would usually charge between 20 per cent to 30 per cent to source talent – which would cost a business over £5,500.

Here’s how the recruitment process adds up:

Crafting the job spec

The job spec is a vital component of the recruitment process and its value can often be overlooked, particularly by small business owners taking recruitment into their own hands.

Overall, when hiring for the average-salaried employee, producing the right job spec would take up two hours of a business owner’s time. Based on our above valuation of time, that’s £200.

Screening

According to Collingwood, 118 people apply for a given job on average. This number does vary from industry to industry, but overall, 118 applicants to screen equates to a lot of hours.

From our perspective, the average salaried job takes up roughly 24 hours in screening, or £2,400 if you’re to put a cost on it.

Initial calls

Collingwood claims that the average screening call takes an average of 30 minutes, even though many managers claim to know within 90 seconds if they would hire a candidate or not.

If 20 per cent of the applicants get an interview, you’re talking about 24 candidates and 12 hours of work, which totals a cost of £1,200 to the business.

Interviewing

Assuming a quarter of the candidates contacted for an initial call make it through to an interview, you’re left with six potential employees.

With the average face-to-face interview lasting about 45 minutes, this is represented by four-and-a-half man hours, and an overall cost of £450.

Onboarding

Onboarding equips new employees with the requisite information, knowledge, tools and resources to understand an organisation’s culture, people, processes and practices.

For the average-salaried employee, onboarding generally requires less time than if you were hiring a senior or director level employee.

Generally, we’ve found this process to take four hours, equating to £400 as a cost to the business.

Handover

While handover can generally be an extensive process in more senior roles, by-and-large the handover process generally takes about a day for employees on the average salary.

Employers will be liable to pay double wages on that day, given the existing employee and their replacement will be working together to transfer work from one hand to the other.

Based on the average salary this is a cost of £76 to the business.

Training

Most companies offer either in-house training or funding towards external training. Either way, this comes at a cost. The average UK company spends £1,068 per employee.

Other costs

There are an array of other costs to consider such as the HR costs to deal with new starters, holiday cover, cover for maternity leave, sick days, company cars, software licences and more, depending on your industry.

Total cost

Based on the figures generated above it costs a business up to £11,000 to replace an employee earning the UK average of £27,721.

 

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ABOUT THE EXPERT

Carly Hacon is a reporter for Business Advice. She has a BA in journalism from Kingston University, and has previously worked as a features editor for a local newspaper.

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