Invisible Spend of Growing Headcount

We welcome this guest post from Steve Lorde, Co-founder and Director of recruitment solutions provider Consult Inhouse.

When an organisation is in its growth mode, one of the most challenging obstacles is getting the right people on board cost effectively and within the timescales to meet the company’s goals. Hiring managers and business leaders often have a solid projection of a how much revenue will be directed towards an employee’s payroll, yet often overlook is the cost associated with recruiting this talent in the first instance. However, it is crucial to have a firm grip on all hiring spend, otherwise this cost can quickly become burdensome.

What are the hidden costs?

Recent data from the Recruitment & Employment Confederation (REC) shows that the average recruitment fee for a single permanent placement increased by 6.4% in 2017/18 to reach £4,238. When coupled with separate figures from LinkedIn (2018) which reveal that the average global staff turnover rate stands at 11%, the price of managing staff turnover is apparent.

Based on the above figures, companies with a headcount of just 250 shell out, on average, £116,545 a year on recruitment agency fees - even if they are not increasing headcount. Using the same methodology, it can be deduced that an organisation which employs 1,500 people can expect to spend at least £699,270 annually on agency fees, while a firm with 5,000 staff will hand over an average of £2,330,900 each year to recruitment firms just to manage talent attrition.

This cost can also escalate greatly, as the fee for senior and niche skills are typically considerably higher - and, of course, for firms that are actively growing headcount, this figure can quickly become unwieldy.

Contingent workers

The spend associated with hiring contingent workers can also further increase this cost. According to Deloitte’s 2018 Global Human Capital Trends study, businesses estimate 30% of their procurement spend is directed towards contingent workers – a segment of the workforce which continues to grow rapidly across the globe. According to the Bureau of Labour Statistics, 5.9 million people hold contingent jobs in the US, and in the UK it is 4.8 million, which equates to 15% of the workforce. The growing demand of freelance workers, contractors, and part-time employees creates a new set of procurement challenges and requires even more attention to staff spend. Many contingent workers are hired for hard-to-fill roles or where specialist skills are needed. Because of this expert requirement, remuneration rates for these specialities are also considerably higher – and so are the fees that agencies charge for sourcing them.

How to address the problem

Bringing talent acquisition in-house can slash costs dramatically and ensures that business leaders are aware of all spends involved while managing the people strategy. Historically, practices where talent acquisition is handled disparately across several functions, meant that the true cost of hiring was often invisible. A lack of communication that can come from dealing with multiple departments or locations with no centralised budget can lead to issues with funding management and future problems with calculating a workforce plan.

For procurement professionals looking to get a handle on staffing spend, the first step is to analyse and evaluate how the business has hired historically in order to inform future recruitment strategies. It is only through a comprehensive audit of existing processes, practices and talent providers that practitioners can identify opportunities for positive change.

Once the full picture around hiring costs has been revealed, HR teams can begin working collaboratively with other functions to reduce or even eliminate spend on recruitment agency fees. For example, attention can be focused on increasing direct sourcing for talent. This can be achieved by introducing a policy to advertise all positions internally, enhancing the company’s website to attract more direct candidate applications or implementing an employee referral scheme. Also, inviting incumbent suppliers to renegotiate terms of business can be a particularly effective means to manage spend. Engaging in frequent discussions regarding what is working and what is not will also identify where unnecessary money is being spent.

Bringing recruitment in-house will allow the business leaders to have a bird’s-eye view of all procurement activity, and give them the ability to identify and reduce surplus spending. Increasing awareness around the price of recruitment is crucial to building a culture of accountability – and procurement professionals are best placed to lead this change.

 

Disclaimer: the opinions expressed in this guest post of those of the author and do not necessarily represent Spend Matters' official position. 

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