Hiring new employees can be a daunting and costly process, often more so than employers realize when conducting salary planning or building a compensation strategy. While companies tend to be aware of the direct expenses, such as salaries and recruitment fees, they may overlook the hidden costs associated with hiring, like time spent on interviews, training, and the potential for a bad hire. In fact, according to the Society for Human Resource Management, the average cost per hire rose to $4,700 in 2023, a 14% increase from the previous year. Multiply that across an entire department or company, and it’s clear that the cost of hiring can be a major challenge for businesses.
In their attempt to keep costs down, many employers avoid partnering with staffing agencies, viewing them as another expense. But in reality, staffing agencies can actually lessen both the obvious and hidden costs of hiring and boost employee retention—which can pay off big time when looking at your overall wage planning and employee compensation strategy. By streamlining the recruitment process, providing access to a pool of qualified candidates, and reducing the risks of turnover, staffing agencies offer benefits that extend beyond just filling a position—they help companies save time, resources, and ultimately, money.
First, how much does your workforce cost?
When it comes to the cost of labor, there’s so much more to consider than just an employee’s hourly wage or base salary. The true cost includes a variety of direct, indirect, and often hidden expenses that can add up quickly—and account for more than you planned in your employee wage strategy or compensation strategy.
At the most basic level, you have direct costs like wages, salaries, and benefits such as health insurance, retirement plans, and paid time off. These are the numbers that usually come to mind first when thinking about the cost of hiring someone.
Then there are indirect costs, which are harder to quantify. Think about the time and money spent training new employees. It’s an investment, but it takes resources away from other important areas of your business. And let’s not forget the cost of turnover; when an employee leaves, you’re not just losing their contribution to your team, but you’re also facing the costs of finding and training their replacement. This can create a cycle that’s both time-consuming and expensive.
Taxes are another part of the equation. As an employer, you’re responsible for payroll taxes like Social Security, Medicare, and unemployment, as well as workers' compensation insurance to protect your employees in case of work-related injuries. These ongoing expenses add to the overall cost of having someone on your payroll.
Don’t forget about payroll processing costs either! Whether you handle payroll in-house or outsource it, there are administrative expenses that come with making sure everyone gets paid accurately and on time. Then there are other overhead expenses, like the cost of office space, equipment, and everything else that supports your employees in doing their jobs.
So, taking all of these factors into account, how do you figure out the true cost per employee? You may want to do your own calculations, but a good starting point for your estimate is that the total cost is about 1.25 to 1.4 times their base salary. This adds in more of those extra expenses beyond just the hourly wage.
The hidden cost of not hiring
Knowing how costly a hire can be, what can companies do to help reduce their labor expenses? Some choose to save money by delaying or avoiding hiring altogether, the hidden costs of not filling important positions can be more significant than you might expect.
Growth and Productivity
One of the first things that can suffer is your business’s growth and productivity. Without enough team members to share the load, projects can slow down, deadlines might be missed, and the overall progress of your company can stall. This can lead to inefficiencies that affect everything from how you serve customers to how quickly you can develop new products.
Employee Turnover
Your existing staff can also start to feel the strain when there aren’t enough people to help out. Increased workloads can lead to stress, burnout, and eventually, higher turnover as employees seek out jobs at a more manageable pace. Losing valued team members can be costly, not just in terms of finding and training replacements, but also in the loss of their experience and knowledge.
Missed Revenue
Not hiring can also mean missed opportunities and lost revenue. When you don’t have enough hands on deck, you might have to pass on new projects, delay launching new products, or struggle to meet customer demand—all of which can impact your bottom line. Over time, these missed chances can add up, leading to a noticeable dip in your revenue.
Your Business's Reputation
Finally, there’s the impact on your company’s reputation. If your team is consistently overworked, and projects are delayed, it can affect how customers and potential employees view your business. A reputation for being understaffed can make it harder to attract top talent and new clients, creating challenges that can be difficult to overcome.
So, while not hiring might seem like a way to save money in the short term, the hidden costs in terms of lost productivity, employee burnout, missed opportunities, and long-term reputation can actually end up costing your business much more in the long run.
Using temporary staffing to reduce overall labor costs
On the flip side, temporary staffing or flexible staffing offers a smart way for businesses to keep their labor costs in check—namely because they help to minimize overhead expenses. Unlike permanent employees, temporary workers typically don’t require the same benefits, such as health insurance, retirement plans, or paid time off. This means that by hiring temporary staff, companies can avoid these additional costs, as well as payroll taxes and workers' compensation insurance that would otherwise apply to full-time employees. This can translate to a more flexible employee compensation strategy overall.
Temporary staffing also gives businesses the chance to “try before you buy.” Hiring temporary employees on a temp-to-perm basis allows you to assess their skills, work ethic, and cultural fit before committing to a permanent hire. This strategy helps ensure that when you do decide to bring someone on full-time, they’re the right fit for your team, reducing the risk and costs associated with a bad hire.
One last significant cost-saving comes from reducing the need for permanent hiring. If your business doesn’t frequently need to fill long-term positions, then bringing on a full-time recruiter or other HR person might not be the most efficient use of resources. Instead, a staffing agency can step in to serve as a “temporary” recruiter, providing you with the flexibility to bring in staff as needed without the ongoing salary and benefits costs associated with permanent HR personnel. In doing so, you can allocate more of your resources to ensure a more robust and competitive wage setting for the employees you bring on board.
Partnering with a staffing agency: A strategic approach
Flexible staffing solutions like these are often cited as the number one reason businesses choose to work with staffing agencies, and for good reason. According to the 2024 Workforce Solutions Buyer Survey, flexibility in managing labor costs and resources is a key driver behind the decision to partner with staffing firms. This flexibility allows companies to reduce costs, fill open positions with top-quality talent, and implement vendor management systems (VMS) to streamline the hiring process.
A staffing agency can also help you to more seamlessly adjust your workforce to meet fluctuations in business demand, whether it's due to seasonal changes, increased volume, or the need for specialized skills. Temporary staffing allows businesses to scale up or down as needed, providing the right number of employees without the long-term commitment or costs of permanent hires. This flexibility is especially valuable for industries with seasonal peaks, dynamic environments, or operations that move locations, ensuring your business can respond quickly and continue running smoothly without the burden of a large, permanent workforce during slower periods.
Consequently, partnering with a staffing agency can be a game-changer for your business, especially when it comes to optimizing labor costs and boosting efficiency. Staffing agencies are experts in helping you manage your workforce expenses, making sure you get the right talent without breaking the bank. They help you find that sweet spot between keeping your team productive and staying within your budget, so you can focus on what you do best.
The added benefit of compensation insights
Finally, one of the biggest—and more often overlooked—perks of working with a staffing agency is their ability to offer insights into market-competitive wages. These agencies have a deep understanding of industry trends, and they can help you update your compensation strategy to offer salaries that attract top talent while still being mindful of your bottom line. This ensures you’re sticking to competitive wage settings in the job market without overspending.
Staffing agencies also make the hiring process a breeze, cutting down on the time it takes to fill open positions. Thanks to their vast networks and pre-screened candidates, they can quickly connect you with the right people, reducing the time and effort you’d typically spend on hiring. This means your team stays focused, and your business keeps running smoothly.
Another key benefit of partnering with a staffing agency is the peace of mind they provide when it comes to compliance and employment risks. They stay on top of the latest labor laws and regulations, helping you navigate the complexities and avoid any costly missteps. With their guidance, you can rest easy knowing that your business is protected.
When you’re looking for a staffing partner who truly understands your needs, Spherion is here to help. As a leading-edge agency, Spherion is dedicated to helping businesses like yours optimize labor costs, speed up the hiring process, and stay compliant with ease.