Hiring costs are an important metric for any business to understand. Calculating hiring costs can help businesses to understand the importance of careful analysis prior to hiring a new employee. For example, if hiring costs show that it costs a business $4,000 to hire a new employee, if that employee does not work out, the company has not only lost $4,000, but $8,000 when the costs are incurred to hire that employee's replacement.
In general practice, the most common method for calculating hiring costs is known as the EMA model. Established in 1983, the EMA model allows a business to accurately view their liabilities associated with hiring costs, accounting for direct costs as well as internal and external expenses. Some of the expenses recognized with this accounting method include the internal cost of recruiting salaries and incurred travel, the cost of external recruiters and associated travel expenses, costs for company visits and interview day expenses, direct fees such as job fairs, advertising and employee referrals, relocation costs, sign on bonuses and time-to-start costs.
In order to determine the actual cost per hire for a position, several expenses need to be considered. The first place to start is to calculate the total cost of advertising fees for the open position. This includes fees for any job boards or classified ads that may have been posted, or direct mailings that have been done related to hiring for the position. The next expense to be added to the advertising total is the fees paid to any agency for recruiting services. In addition to the advertising and agency fees, another expense to be accounted for in calculating hiring costs would be any payments made for employee referrals.
If any travel expenses are incurred in relation to recruiting, including flying to job fairs or paying to fly a candidate to your office, that cost should also be added. If there are any agreed relocation benefits or sign-on bonuses, those fees should also be included in a comprehensive analysis of hiring costs. The final expense which should be included is the cost of internal recruiting, such as the salaries paid to internal staff for time spent recruiting, screening resumes and interviewing candidates.
In the event that there are fees paid for background checks, drug testing, or other verification services, those expenses should be accounted for as well. The sum of these expenses equals the total hiring cost for the position being reviewed.