One of the more common tasks facing employers these days is recruitment. Things have changed in the past two or three years, and once stable workforces seem, in the majority of cases, to be a thing of the past.

And that means there’s a cost. There’s the obvious cost of the upward pressure on wages meaning that either existing staff want more for doing the same, or you’ll struggle to find a new staff member willing to work for the same as the person they’re replacing. In the former case, there are a lot of employees who seem to think that a pay rise right now is just a foregone conclusion due to the undeniable increases in the cost of living, but they seem to assume that they alone are suffering from inflation – employers seem to be seen as somehow being able to survive the effects of COVID, supply chain issues, cost of living increases, and yet still be ready, willing and able to bump everyone’s wages up at the drop of a hat?? However, they may be on to something….

What is often missed or at very least glossed over are the less obvious costs of recruiting staff, over and above just the direct comparison between ‘old wages’ and ‘new wages’. Or to put it another way – even if you feel you can’t afford the expected pay rise for existing staff, ask yourself if you can afford to not meet their requests? There’s dozens of commentaries on this online, and probably as many different theories as to the true cost of replacing a staff member who leaves, but the consensus is clear: depending on what level the staff member being replaced was at in your company, it will cost you at least 30-50% of their annual remuneration, just to replace them….and the only stand still before the new person starts to make a difference. For very high-level, specialised, expert staff, the numbers are eye-watering – maybe as much as four times (4x!) their annual salary to replace them, before the new recruit is able to make an overall positive contribution and thus truly fill the hole left by the previous person in the role.

So, what are these ‘hidden costs’? Actually, they’re not so much hidden as hiding in plain sight if you care to look. Consider these direct and easily quantifiable costs, all of which are in addition to the probably higher salary the new recruits may think they are worthy of:

  • Advertising the role
  • Paying a recruitment agency, even if just to initially vet applications
  • Additional screening costs – you’ll either pay the agency to do this, or spend hours of your own time instead
  • Psychometric testing
  • ‘Gap fillers’ – using a temp for example
  • Recruitment incentives – relocation costs for example
  • Off-site training

Then there are the less direct costs – consider all the time spent by other staff, and very likely the boss at some stage if not throughout the whole process, on tasks such as:

  • Client introductions and handovers
  • Keeping other staff informed of change
  • The actual hiring process –
    • reading and assessing CVs and application letters
    • booking and conducting interviews
    • reference checks
    • security checks
    • second interviews if necessary
  • Onboarding
  • Replacement equipment and resources
  • Training
  • Initial reviews to check on progress

And after all of that is done and dusted, what other costs have you incurred along the way in terms of reduced quality of output and loss of productivity (both from distracted staff who are staying on, and due to the departing team member ‘checking out’ long before the final day of their notice period); the impact on team morale (“why is this person leaving? – how will we cope without them? – what if the new person isn’t as good?”); potential loss of customers as some may go with the employee who is leaving; extra workload on remaining staff until the gap is filled; the list goes on.

All in all, it’s not just replacing a team member who was costing $70k p.a. but who had asked for $75k, with a new person who costs even $70k if you’re lucky – it’s all those other costs both hidden and obvious, but which all mount up. So maybe, just maybe, the answer is to not reject the pay rise request out of hand, but ask yourself not what the cost of agreeing to the pay rise is, but what the cost of not agreeing to it will eventually come to…

Either that, or just create a working environment that is so good, that no one will ever threaten to leave – but that is a whole new topic to explore in another blog!

Talk to one of our advisors to help you navigate a good retention plan for your valuable team.