Human Resource

How much does an employee actually cost you?

It is a no-brainer that the recruitment process is expensive. But exactly how expensive is it? Have you ever paused to calculate it? When you get down to it, do you take into account both the direct and indirect costs. Here is a spreadsheet that you might find useful in your calculations. If you need the Excel version, contact me and I will mail it to you. Remember to customize it for your organization.

Here is the kicker: what if the person you hire does not work out? What if s/he does not perform to expectations? Now you have to go through the same process all over again. It is a risk. But if you do not knowhow it cost you in the first place, how would you evaluate the risk-return.

In another case, there is only so much you can do with the existing manpower you have. You need to get in more people while keeping an eye on your overheads. When your small business reaches this point, do you hire an employee or an independent contractor?

I’ll go over the pros and cons of each of two in my next post. Meanwhile, get a handle on your recruitment costs.

[Update 6 July]: Once you fill out your numbers, do a similar spreadsheet on the revenue side. Every investment or expense you make has a cost and benefit. Preparing a similar spreadsheet on the revenue side will enable you to objectively evaluate your hiring process.