The direct costs associated with a job vacancy are just the tip of the iceberg. Hiring managers also need to consider the indirect costs associated with having an empty seat. Taking too long to hire can negatively impact your business’s top and bottom line as the hidden costs will compound as time goes on.
Calculating direct costs
There are a couple of factors to consider when determining the direct costs associated with a job vacancy. The position’s annual salary, the average days to hire, and the number of working days per year should all be taken into account when calculating the direct cost of an unfilled position.
Here’s an easy formula to follow:
Position’s annual salary / number of working days per year X average days to hire + % of benefits
$100,000 (salary) / 220 (working days) X 45 (days to hire) + 30% (benefit costs) = ~ $26,591
*Source does not follow the rule of parenthesis, exponents, multiplication, division, addition, subtraction (PEMDAS) to estimate direct costs, but rather follows the formula directly across.
Using the proxy numbers above, a vacant job position could save you around $26,591 during that 45-day period, however, this calculation does not include the costs involved in covering the workload. Whether you choose to hire a temporary contractor, outsource the work, or pay an employee overtime, each of these alternative costs will ultimately exceed the cost of a regular full-time employee.
Not to mention, the overall impact on the business and productivity within the office will certainly take a toll.
Estimating indirect costs
The loss of an employee, directly and indirectly, impacts the business as a whole. Loss of revenue and profits, turnover, project trajectory, and time all contribute to the indirect costs associated with a job vacancy.
If in-house employees are picking up the vacant position’s slack, you’ll run the risk of burnout and an increase in turnover. If a temporary placement isn’t performing up to the position standards, you’ll run the risk of projects failing and your bottom line decreasing. Revenue per employee is an important KPI to keep in mind when considering the impact a vacancy has on a business.
To roughly calculate lost revenue, follow this formula:
(Annual revenue / # of employees) / number of working days X number of vacant positions X average days to hire
To roughly calculate lost profits, follow this formula:
(Annual profits / # of employees) / number of working days X average days to hire
This Forbes article states that as weeks turn into months without that extra member on the team, the added workload can lead to doubt about the company’s ability to fill the role, resentment for not handling the situation, and a feeling of working continuously without a light at the end of the tunnel.
Tips to keep vacancy costs low
- Work your network
- Respond to candidates swiftly
- Lead with transparency
- Discuss salary upfront
- Pitch the position to potential hires
- Prioritize a culture fit
- Provide incentives to in-house employees
Expedite the process with help from a trusted partner
It’s no secret that the longer it takes you to fill a position, the more it costs. Time is money. Sources claim that an open position can be estimated to cost around $500 per day. This includes the time it takes for management and HR to outsource and interview candidates, marketing/ advertising dollars, contract labor, and all of the indirect costs mentioned above.
Selecting an experienced recruiting agency to help with your search is oftentimes the quickest way to find the most qualified candidates.