Staffing Agency Vs Direct Hire Cost

Category: Hiring Tips

Cost of a Direct Hire

1) Sourcing costs – costs incurred during the initial search for the candidate. These costs may include fees for print ads, online job board posts/social media posts, employee referral programs, job fairs, etc. In addition, you should include the time that a hiring manager may take to do his/her own sourcing from networks, contacts and other referrals.

2) Screening costs – the cost of the internal recruiter’s time to understand the job requirements, develop and implement a sourcing strategy, review resumes and backgrounds, prepare candidate assessments, etc.

3) Preliminary interviewing costs – the costs wrapped around preliminary phone interviews and the cost to have the internal staff prepare, conduct, summarize and communicate the results of those interviews

4) Interviewing costs – includes the cost of scheduling interviews, the reimbursement of travel to and from the interview, and the actual time involved (for all employees) in conducting the interviews. In addition, the costs of employees who must be away from their job while interviewing candidates need to be included.

5) Testing costs – cost for pre-employment tests to help assess a candidate’s skills, abilities, aptitude, attitude, values and behaviors. These costs include any software subscription fees, per-test charges, and cost of the employee’s time who administers them

6) Other hiring costs – includes the time and cost for follow-up with candidates during negotiations and to notify those who were not selected. In addition, there are (perhaps) relocation fees, background checks, reference checks and drug screens. Some hiring costs are less tangible and may be more difficult to measure. These can include:

7) Time to fill position – it takes (on average) 8 weeks to recruit, screen, interview, and hire a new employee. All of your hiring costs must be multiplied by the number of weeks that the position is vacant.

8) Lost productivity cost –calculate the cost of this lost productivity at a minimum of 50% of the person’s total compensation for each week the position is vacant, if there are people filling in for the exiting employee.* This is due to the fact that these workers may not understand the processes involved and may have little/no training.

9) Bad hire costs – making a bad hire can cost anywhere from 1.5x to 3.5x (or more) of that person’s annual salary.

Cost of Temps

1) Recruiting – You will probably review a few resumes and you may interview a couple of candidates.
2) Time card and Invoice Processing – You will have to process time cards/invoices
3) Wages & Markup
Beyond this most costs are a wash.
Here’s why, when you hire an employee, there are costs such as vacations, insurance and leave that you are no longer responsible to pay. If the staffing firm offers benefits, they are wrapped up in your billing rate. You don’t have the financial exposure.