Finding, qualifying and onboarding great employees is an essential function of any HR department, but it’s also costly. Especially if you take into an account all the internal and external costs that are involved within a hire.
Many organisations have their own unique recruiting metrics, but when it comes to Cost per hire, it was standardized in 2012 by the Society for Human Resource Management (SHRM)and the American National Standards Institute. The official formula is:
Rules are simple. Break down all the costs related to your hiring efforts, both internally and externally, and then divide them in a set period, e.g. a year, quarter or month.
Internal recruiting costs
In-house recruiting team salariesEducation and development costs for the hiring teamA percentage of hiring-manager salaries based on the proportion of time spent on hiring. So if a manager devotes 10% of their time to interviewing and hiring duties, and 90% to non-hiring related tasks, include 10% of their salary.Bonuses paid for employee referrals
External recruiting costs
Software subscriptions: applicant tracking systems (ATS), candidate relationship management systems (CRMs), or screening and testing websitesSourcing: agency fees, job-board postings, career fairsCandidate vetting: background checks, drug testingTravel expenses related to hiringAnything spent to entice candidates: dinners, signing bonuses, relocation expenses, etc.
Total number of hires
This should include the total number of internal and external hires, either as full-time or part-time, who completed the hiring process and were hired during the period (e.g. month, quarter or year).