The Real Cost of a Recruiting Department

While outsourcing your entire recruiting operation may sound expensive, when you break down the costs of a highly functional internal recruiting team you may be surprised. There are also several factors beyond cost that should be evaluated when considering the benefit of an in-house recruiting function versus outsourcing this strategic element of your business. The six critical areas of an internal recruiting operation are: Internal Labor Costs, External Labor Costs, Advertising, Administrative, Facility and Opportunity Costs. Lets take a look at each of these.

LABOR COSTS:
• Recruiting Manager – Someone has to be in charge of the overall direction of the recruiting team as well as manage the day-to-day operations of the department. This person is also responsible for hiring, training and developing the recruiting staff
• Recruiters
• Sourcing support – These are your internet, big data, find candidates under hard to find rocks members of your team
• Administrative Support – The members of the team that help schedule interviews, coordinate background checks, generate reports and keep the team running smoothly
• Labor Overhead – Employer paid taxes and benefits will run between 25% - 40% of your actual labor costs

EXTERNAL LABOR COSTS:
• Contract recruiter fees and expenses • Contingency recruitment fees – these range from 20% - 30% per search

ADVERTISING:
• Annual subscription fees to sites like LinkedIn, CareerBuilder, Dice, Indeed and Ladders can be has high as several thousand dollars per person utilizing the service
• Unique website fees
• Fees associated with employment websites specific to a geographic area
• Print advertising
• Career Fairs
• Social media marketing expenses

ADMINISTRATIVE EXPENSES:
• Applicant Tracking System expenses – These will be recurring monthly expenses as well as additional fees for specialized reporting or customization
• Background Checks
• Reference Checking

FACILITIES:
• Physical Space – Every employee tied to recruiting needs 225 – 250 square foot of physical space. Multiply this by your per square foot rental cost or building operational cost.
• IT expenses – It is estimated that the average employee costs a company $7,000 per year in overall IT expenses. These expenses include: computers, phones, phone utilization, IT supplies and internet expenses.
• Office Supplies – On average an employee uses $200 per year in miscellaneous office supplies.

OPPORTUNITY COSTS:
When Human Resources professionals analyze how much time they have to spend on recruiting activities, the result is often stunning. When a company is going through growth mode it can take up a significant amount of their time. HR professionals don’t always make the best recruiters. Direct recruiting passive candidates is a lot closer to Sales than traditional HR functions and it may not be a strength of some HR professionals. Personally doing the recruiting, or managing a recruiting team, can take away from an HR leaders ability to be a true business partner to the organization. Strategic initiatives, employee engagement and operational effectiveness can be greatly improved by having your talented HR professionals focus on what they do best.

When a true review of the financial expense of running your own Recruiting Department is reviewed against the costs of outsourcing this function to the right vendor, it often becomes clear that outsourcing can provide significant cost savings. In addition to the financial savings, companies find that by utilizing a vendor that provides highly skilled recruiters, they can increase their quality of hires, decrease turn-over, improve time to fill, as well as make their HR team and department managers more productive and functional.

IS IT TIME TO SPLIT HR?

Below is an article from the July / August Harvard Business Review. Interesting thoughts. Jeff IT'S TIME TO SPLIT HR by Ram Charan It’s time to say good-bye to the Department of Human Resources. Well, not the useful tasks it performs. But the department per se must go. I talk with CEOs across the globe who are disappointed in their HR people. They would like to be able to use their chief human resource officers (CHROs) the way they use their CFOs—as sounding boards and trusted partners—and rely on their skills in linking people and numbers to diagnose weaknesses and strengths in the organization, find the right fit between employees and jobs, and advise on the talent implications of the company’s strategy. But it’s a rare CHRO who can serve in such an active role. Most of them are process-oriented generalists who have expertise in personnel benefits, compensation, and labor relations. They are focused on internal matters such as engagement, empowerment, and managing cultural issues. What they can’t do very well is relate HR to real-world business needs. They don’t know how key decisions are made, and they have great difficulty analyzing why people—or whole parts of the organization—aren’t meeting the business’s performance goals. Among the few CHROs who do know, I almost always find a common distinguishing quality: They have worked in line operations—such as sales, services, or manufacturing—or in finance. The celebrated former CHRO of GE, Bill Conaty, was a plant manager before Jack Welch brought him into HR. Conaty weighed in on key promotions and succession planning, working hand in glove with Welch in a sweeping overhaul of the company. Mary Anne Elliott, the CHRO of Marsh, had had several managerial roles outside HR. She is overhauling the HR pipeline to bring in other people with business experience. Santrupt Misra, who left Hindustan Unilever to join Aditya Birla Group in 1996, became a close partner of the chairman, Kumar Mangalam Birla, working on organization and restructuring and developing P&L managers. He runs a $2 billion business as well as heading HR at the $45 billion conglomerate. Such people have inspired the solution I have in mind. It is radical, but it is grounded in practicality. My proposal is to eliminate the position of CHRO and split HR into two strands. One—we might call it HR-A (for administration)—would primarily manage compensation and benefits. It would report to the CFO, who would have to see compensation as a talent magnet, not just a major cost. The other, HR-LO (for leadership and organization), would focus on improving the people capabilities of the business and would report to the CEO. HR-LO would be led by high potentials from operations or finance whose business expertise and people skills give them a strong chance of attaining the top two layers of the organization. Leading HR-LO would build their experience in judging and developing people, assessing the company’s inner workings, and linking its social system to its financial performance. They would also draw others from the business side into the HR-LO pipeline. After a few years these high potentials would move to either horizontal or higher-level line management jobs. In either case they would continue to rise, so their time in HR-LO would be seen as a developmental step rather than a ticket-punching exercise. This proposal is just a bare outline. I expect to see plenty of opposition to it. But the problem with HR is real. One way or another, it will have to gain the business acumen needed to help organizations perform at their best.