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There has always been competition among companies for talented employees and are one of the most highly-coveted resources on the market.
This makes it all the more necessary to seek the right person for the job given that they are important investments in your business.
Understanding your hiring expenses can help in reducing impractical costs to focus on increasing the revenue and profitability of your business.
That being said, the process of hiring and retaining employees is pretty challenging especially when we’re in a pandemic.
It is easy to brush off that hiring an employee means more than paying their salary. When you take into account the cost of recruiting, onboarding and training and employee benefits, the hiring costs start to add up.
According to Harvard Business Review data, 23% of new hires turn over before their first year is up. So even a bad hire could be costly.
Hiring is definitely one of your biggest expenditures. Let’s run down some general hiring costs that your business may have.
Recruiting qualified employees takes time, patience and money. Sure, you can always count on an external hiring team to sieve out potential candidates, but their services do not necessarily come cheap.
If you are a small business, having an internal hiring team is most likely not feasible, as it only eats up finances that could be allocated to other areas.
Let’s assume that your company hires a recruiting firm. They typically charge their clients in 2 ways – retained and contingency structure.
The retained structure is when you pay upfront, guaranteed fee for their services and this also allows them exclusive access to your job listings.
On the other hand, the contingency structure is performance-based and are only paid when they successfully recruit an employee for your company.
Generally, their services are anywhere from 15% to 30% of the employee’s annual salary on top of Central Provident Fund (CPF) contributions.
Of course, in this digital age, technology could help ease some problems.
Digital recruiting platforms, like Outside, have adapted by simplifying the troublesome process of hiring into a single standardised app to provide you with a holistic view of recruiting from sourcing to making payments.
Nevertheless, despite this costly and time-consuming process, recruiting quality top workers should be one of your priorities because skimping could backfire.
On-boarding and Training costs
The onboarding process is the period where an employee joins the company and successfully adapts to their new role.
The costs involved in onboarding may include equipment, tools and working hours to train the new employee.
A 2019 study shows that companies spend an average of $1,286 annually on only the training costs per employee.
Effective onboarding can help raise employee retention by 25%, so investing in your onboarding and training programs could help save time and effort again on a new hire.
Lost productivity can end up costing between 1% to 2.5% of total revenues and may have a negative effect on your organisational performance.
Salary and benefits costs
On top of paying monthly salaries, employers in Singapore are required to comply with relevant mandatory statutory contributions for their employees.
Employers are required to make CPF contributions, for their Singapore citizens or permanent resident employees.
And if you are a business that employs a foreigner, you will have to pay a Foreign Worker’s levy monthly.
Bear in mind that the monthly CPF contribution rate varies according to the age band of the employee. You may refer to the official CPF website for more information.
To retain employees, businesses often offer employee benefits, and these benefits come at a cost.
According to Joe Hadzima, a senior lecturer at MIT, an employee’s salary including benefits usually ranges between 1.25 to 1.40 times the base salary.
These are rough estimations and not the complete picture but as time goes by, salaries are expected to increase and this definitely requires changes in your budget.
Now let’s imagine this situation: Hiring an HR manager to be on your team.
According to Glassdoor, the average salary of an HR manager is $5,612 per month and an annual salary of about $67,000. That costs you $84-$94K including benefits in total.
Add in roughly another $1,300 in training costs, and the associated costs with onboarding and a transitional period for them to settle in.
Finally, add in $14-$28K for recruiting costs, assuming that you engage a recruiter firm based on a contingency structure.
That will total up to an estimated amount of $123,000 as your total hiring cost and presuming that the employee stays with you long enough to break even.
You can breathe that sigh of relief that your investments have not gone to waste and continue to act on the financial incentive to hire the right employees to be on the safe side.
Companies are always on the lookout for talents, especially when there is a growing demand for digital talents and skillsets.
You may want to consider a digital hiring platform as one way to effectively avoid losing time and money on hiring over and over again.
Outside is Singapore’s leading community micro-job platform that creates micro (l)earning opportunities for students, homemakers and seniors.
As a two-sided platform, Outside provides an all-in-one outsourcing management platform for businesses, assisting in breaking down jobs into smaller simpler pieces and improving operations efficiency. For job seekers, Outside provides flexible job opportunities that users can easily pick up and complete within the Outside app, allowing them to work conveniently and earn reliably.