Get the lowdown on recruitment costs, including expert insight into how much you should pay a recruiter, the average cost per hire, and the cost of doing it yourself
For almost as long as companies have been recruiting workers, people have been trying to work out how much the whole process costs.
Even now, estimates vary wildly. Recruitment platform Glassdoor is one of many to use a figure of £3,000 as the average cost per UK hire, and has also conducted research to find that it takes the average UK employer 27.5 days to hire a new employee.
However, a study by small business accountants Accounts and Legal put the average cost at £12,000 – a figure it arrived at after assigning a value of £100 per hour to the myriad tasks associated with hiring a new employee.
Needless to say, neither of these figures includes the new employee’s salary.
While there’s no definitive answer, it’s a good idea to break down the recruitment process into its constituent parts, so you can work out which ones apply to you.
That’s what we’re going to do in this article, as well as giving an insight into how much using a recruitment agency is likely to cost.
This guide will cover the following sections:
What costs are there in recruitment?
Whether you’re setting up your own recruitment agency, or working in-house as a recruiter, here are the main costs you’ll need to worry about:
- Writing the job spec
- Advertising the role
- Screening candidates
- Phone interviews
- In-person interviews
We’ll now examine each of these in turn.
Writing the job advert
Whether you call it the job spec or job ad, this first step is crucial.
It’s easy to underestimate the importance of this process, but a bad job ad can really hinder the search for a new employee. You need to set the time aside to produce a high-quality ad that reflects the hiring company, clearly states the requirements of the role, and is creative enough to stand out in a sea of other job ads.
How long all this takes depends on your creativity and writing ability, but you should set aside at least two hours.
Make sure you’re not too vague – the goal is to attract applications from the right candidates, not to receive a large number of applications. Being flooded with CVs only means you have to spend more time sorting through them all.
Also, remember that many candidates will be reading the ad on their mobiles, so avoid lengthy paragraphs and keep to the point. Using bullet points is also a good idea.
Advertising the role
Now you’ve got that killer job ad, you’ll need to get it out there.
The amount you spend will vary depending on how widely you want the job ad to be advertised, but a 2014 study by Oxford Economics found that UK companies spent an average of £370 per role on advertising their roles. There was, however, some variation between sectors – retailers had an average job ad spend of under £300, while accounting firms were paying closer to £500.
The cost of posting ads on job boards also varies, with discounts given for bulk listings.
Research by Glassdoor indicates a range of £70–£239 for a single job ad, depending on how long the ad will stay live and the job board chosen.
There’s no two ways about it: going through applications to decide who merits further consideration is a slog, and will take up a significant part of your time.
Exactly how long will depend on how many applications you receive, the quality of those applications, and your screening methods.
The standard method is skimming CVs – and in recruitment circles, the speed with which candidates are rejected is legendary. James Reed, the founder of Reed (Britain’s largest recruitment company), even wrote a book called The 7 Second CV – the title taken from the average length of time recruiters in his company looked at a CV.
However, there’s more to candidate screening than looking at a bunch of CVs for a few seconds.
Firstly, while you may quickly dismiss lots of candidates, some CVs will be looked at much more closely as you decide which candidates to progress to the next stage.
You may also wish to check candidates’ social media accounts for a better idea of how they are as people, or conduct reference checks to get insight from their previous employers.
By now, it should be clear that to work out how long you should spend on this task, you need to do more than multiply the number of CVs received by seven seconds.
Consequently, Accounts and Legal suggest that the average salaried job requires 24 hours of screening candidates.
Also known as screening calls, phone interviews are a great halfway house between just looking at CVs/online data and committing to the time and expense of an in-person interview.
Of course, how long a phone interview takes will vary according to how many phone interviews you conduct, and the level of detail of those interviews.
Set aside at least 30 minutes per phone interview, as this should give you time to get a good insight into the candidate, and decide whether to interview them in person.
As with an in-person interview, make sure you have prepared a list of questions to ask candidates. This will ensure the process runs as efficiently as possible.
The final, and arguably most important step of the hiring process, an in-person interview is usually what ultimately decides which candidate will be offered the role.
This process should be longer and more intensive than a phone interview, so try to set aside 45 minutes to one hour per interview.
For great advice on how you should conduct an in-person job interview, see our guide to How to interview a job candidate. For now, here are a few key points:
- The interviewer needs to make a good impression – It’s easy to just focus on the candidate during the interview process, but in many cases, the interviewer is also on trial. A talented candidate may have multiple opportunities to choose from, so the interviewer needs to make sure they look presentable and do a good job of explaining both the requirements of the role and the ethos of the company.
- Check the candidate’s preparation – One of the most important questions in any interview is “What have you done to prepare for the interview?” This gives you vital insight into the mindset of the potential employee – have they done research into the company, the industry, or even just glanced at the website? If they haven’t, then they might not be the right fit for the company. Similarly, you may want to get candidates to explain the firm’s business model, or simply ask them what they know about the company.
- Let the candidate speak – The more a candidate talks during the interview, the more they will reveal about their personality and skills. As an interviewer, you should mostly focus on explaining the role, asking questions, and making sure the conversation doesn’t stray too far from relevant topics.
As a company hiring an employee, you may also need to consider costs not directly related to the recruitment process. Some of these costs are only relevant when an existing employee is being replaced, while some are relevant to both existing positions being filled and new positions.
These costs include:
- Cost of temp worker/cost of lost productivity for unfilled position
- New equipment (e.g. a new PC in an office job)
- Lost productivity while new employee gets up to speed
How much does using a recruitment agency cost?
Many different factors impact the cost of using a recruitment agency. These include the terms under which you engage the agency, whether the employee is recruited on a permanent or temporary contract, the seniority of the role, and exactly how much work the agency takes on.
We’ll start by discussing the two main recruitment business models – contingency recruitment and retained recruitment.
This the most common business model for UK recruitment agencies.
The key point is this – you only pay the agency once you have recruited a candidate that they put forward.
You are therefore free to hire the services of multiple agencies, safe in the knowledge that you’ll only need to pay the one that puts forward the candidate you end up hiring.
The downside to this is that you encourage hectic competition between agencies, and so they may not have time to conduct detailed checks.
Costs vary, but research by recruitment training company Social Talent found that a fee of 15–20% of annual salary is typical for most roles, with this rising to 25% for positions that are harder to fill.
Which roles are hard to fill changes over time, but the UK’s current tech boom means that specialist software roles are in high demand.
Data published by job board Indeed showed that software engineers, software architects, front end developers, system engineers, software test engineers, and full stack developers are all highly sought after, with a high percentage of positions considered “hard to fill”.
Most commonly associated with executive search agencies that specialise in recruiting for senior positions, retained recruitment is a more in-depth process that comes with higher fees and up-front costs.
This second point is crucial – retained recruiters charge an initial fee that must be paid before candidates are put forward.
There are then further fees to be paid at different stages of the hiring process, with the exact fee structure varying from agency to agency.
Overall, you should expect to pay around 30% of annual salary for a retained agency, while fees can climb to 50% for agencies that operate in specialised niches.
Your contract with the recruitment agency should include a rebate – an agreement that if the hired candidate leaves the job within a stated period of time (often the three-month probation period), then the agency will either replace them for free or refund the fee paid. In some cases, they may only return a percentage of the fee paid, depending on how long the person was employed for.
Whether the agency returns all of the fee or just a percentage varies between agencies, so make sure to check this before signing on the dotted line.
The rules are a little different for employees that aren’t on permanent contracts.
Technically, the worker is employed by the agency. So it’s the agency that takes care of holiday and National Insurance, and then reclaims these costs from the hiring company.
Rates for temporary positions are usually charged as a percentage of the daily rate, with research from Social Talent indicating that an average of 15% is common.
For a role that paid £300 a day, for example, the charge would be £45 per day worked.
The same research found that the situation is a bit different for a fixed-term role, with agencies often charging 12-15% of the equivalent annual salary (and not the period that the employee was being hired for).
For both temporary and permanent workers, a number of agencies are adopting a flat fee structure that isn’t based on a percentage of annual salary – so make sure to consider this when selecting an agency.
How to find a good value recruitment agency
When looking for a recruitment agency, make sure you do the following:
- Thoroughly research the market – To get the right deal for your company, you need to know what the options are. Start by looking online, and if any agencies look promising, call them to get an idea of the prices and services offered.
- Ask questions – Remember that the agencies are looking for your business, and you’re therefore in a position of power. Make sure you ask key questions about their experience in your sector, how quickly they expect to produce candidates, where the job will be advertised, and how many applications they expect to receive.
- Read the contract carefully – Before signing anything, you’ll need to make sure you know exactly how much you’re paying, and what services you’re paying for. Pay particular attention to the rebate clause, which offers a replacement/refund if the hired candidate leaves within a certain period of time.
As we said in the introduction, working out the costs of recruitment is a difficult process. It depends on what methods are used, and which activities are counted as recruitment.
To help, we’ve broken down a common hiring process into five basic stages – writing the job spec, advertising the role, screening candidates, phone interviews, and in-person interviews – and given an idea of how long each might take. Where relevant, we’ve also included how much each might cost.
We also gave a few handy tips for each stage, and briefly looked at other costs that might be encountered during the process of replacing staff or hiring for a new post.
The second part of this guide looked at the costs of using a recruitment agency, giving an idea of typical pricing, and explaining the pros and cons of the contingency and retained recruitment models.
We also examined the different costs involved in hiring permanent and temporary workers, and gave some handy advice on how to choose a recruitment agency.
Finally, always remember that the time and money you invest in recruitment is an investment in the future of your business.
Hiring the right people is a crucial part of growing your company – or, in the case of a recruitment business, the essential activity of your company – and getting it wrong could cost you a lot more than a recruitment agency fee.