How much does it cost to recruit an employee?

Key employment figures for April show Australia has an active workforce with about half its working age population employed.

With 12 million people ‘clocking on’, and 750,000 unemployed, there are plenty of potential job candidates for many industries.

However, sourcing the right person for the right job in the most efficient and cost-effective way depends on the industry recruiting for talent, business operators say.

Big business often favours recruitment agencies to source and screen potential candidates, despite having in-house human resources teams. While the agency is paid via a percentage fee of the salary of the candidate being sought, it’s considered an efficient recruitment process for the investment.

However, small-to-medium enterprises, including the owner-operator, prefer other cost-effective ways to find employees, such as word-of-mouth and direct advertising in print and online mediums.

Regardless of method, recruitment can be expensive for all industries, in terms of time and money, with some suggesting the “real cost” of recruitment can be upwards of 50 per cent of a person’s salary.

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Recruitment costs can start before the employer even realises they need to recruit — for some businesses it means rejecting work because of a lack of people-power, and then needing to evaluate where employment gaps lie within a business. This is followed by the writing of a job description, ‘advertising’ a position and taking an indeterminate amount of time to review applications and interview candidates. Then comes the trial period, where the employer – regardless of business size – hopes their ‘hands on’ recruitment work pays off, with the new employee living up to expectations.

“You need to invest the time to get it right,” says Tim Miller of Bendigo’s Tim Miller Electrical. “No matter the size of business, you need to have the right people in place and to find them it takes time and money.”

Miller, whose business focuses on the installation and maintenance of machinery plant and equipment, estimates it takes his business “120 hours” to recruit one candidate – that could come from an initial pool of 20.

His recruitment methods include advertising, approaching TAFE and old-fashioned “word of mouth”.

“That estimate is if you are doing it properly,” he says.

In a business that services a wide stretch of central and northern Victoria, his five-person team includes “four on the tools” and one in the office. “We need to go back to five on the road for the turnover … and the recruitment process is not quick,” he says.

In equating that to dollars, he adds: “Each business knows what they will charge per hour so it’s easy to work out the sums and get a dollar figure. However, where it varies is the time it takes to start getting money back on a new recruit.”

For an electrical business, Miller says this could be two to three years. “In the recruitment or replacement stage we have to manage one man down, so that can be costly. When we do have a new recruit, you start to make money off them late in their third year.”

Miller says while he could streamline his selection process by minimising the number of candidates interviewed, his specialised business needs a rigorous selection process of two interviews and on-the-job trials for candidates.

“We want people who use their head and think, so we are looking for a particular person who can be adaptable and realise that time is money for a business.”