Cost of hiring employees

  • Employers
  • Published on 15/04/2024

Consider the Real Cost of Hiring Employees

The financial cost of hiring a replacement when someone leaves continues to grow. Many businesses don’t have a full picture of replacement costs. When all the different elements of staff replacement are considered, the end result can come as a very big shock.

Human Resources Director Magazine reports that the average cost of hiring has increased from $10,000 to $23,000 per candidate in the past year, with some companies paying as much as $40,000. But this is likely to include only the direct costs of recruiting, not the indirect ones. The true cost of replacing an employee, as reported by the Australian HR Institute, is closer to 1.5 times their annual salary.

Direct and indirect costs of high employee turnover

It’s easy to assume that the cost of replacing employees includes only the obvious, direct costs. But, the indirect financial cost often amounts to a much higher sum.

Three direct employee replacement costs

  1. Advertising a vacancy on sites such as Seek, Indeed or LinkedIn.
  2. Subscription costs for recruitment software for posting jobs and screening candidates.
  3. Outsourcing hiring to a recruitment agency.

Ten indirect employee replacement costs

  1. Time spent on exit interviews for departing staff.
  2. Knowledge, skills, experience, intellectual property and customer relationships departing with key or long-term employees.
  3. Time spent by hiring managers and business owners on reading and screening resumes, interviewing candidates, checking references.
  4. Lost productivity when other employees need to cover roles which may take weeks or even months to replace.
  5. Burnout from overwork and stress in staff trying to cover vacant roles as well as their own.
  6. Declining employee engagement and negative effect on company culture and morale due to high staff turnover.
  7. Cost of onboarding and training new staff.
  8. Upward salary creep and additional benefits offered to attract new employees.
  9. Increasing prevalence of sign-up bonuses to attract new employees, as reported in the Australian Financial Review.
  10. Hiring a culturally unsuitable or underqualified employee – who has to be replaced once again – in the rush or desperation to fill a role.