Cost Major Factor in Hiring Plans - NCBR

As Economy Picks Up, Employers Face Major Workforce Decisions - Northern Colorado Business Report 

THURSDAY, JULY 28, 2011 -   Obviously, there are plenty of potential employees available in Northern Colorado. So, why aren't companies hiring more workers?...

"From actual experience, we have found that the cost to hire an employee can range anywhere from one-half to five times the annual salary," said Meribeth Lunn, Vice President of Operations for Employer Solutions Group in Loveland. "It can be an enormous expense, especially for small businesses..."

Hard and soft costs
The cost to hire includes both hard and soft costs, according to Lunn.
Hard costs can include advertising the position, background checks, drug tests, a referral fee, signing bonuses and relocation costs.

Soft costs are things like time spent recruiting - usually by higher-paid employees such as the CEO or HR manager - the process of "onboarding" or getting the new hire oriented to the business, and the length of the learning curve.

Forget personality types and organizational dynamics. There are only two kinds of employees in any company when it comes to financials, according to Lunn: revenue producers or overhead. Advertising account managers are revenue producers; editors and reporters are overhead.

"A hiring manager has to weigh all the different factors when bringing on a new employee, but the most important is what will it take to maintain profitability," she said. "That's why you're in business."

For example, an employee with more experience may require a higher salary or more benefits to join the company, but may be able to begin producing sooner, lowering some of the soft costs. Or, maybe a salesperson could generate more revenue if the company hired an assistant to handle the paperwork - an overhead cost - while he or she is selling.

"Then you have to look at the budget to make sure the increased revenue will be able to pay for the assistant," Lunn said. "Especially when all companies are already running lean and mean, the decision of whether to add a new position is the hardest one that a manager has to make."