Prior to 2012, the ways firms calculated CPH varied significantly. Some calculations were much more accurate than others. The Society for Human Resource Management (SHRM) and the American National Standards Institute (ANSI) collaborated to develop a standard CPH formula.
This formula is now widespread and is considered to be the most accurate way to assess CPH.
The formula itself is simple, but gathering the data and making the actual calculation can be labor intensive for the uninitiated.
The standard formula is:
CPH= (Internal Recruiting Costs + External Recruiting Costs)/Total Number of Hires
In other words, you add the total internal and external recruiting costs and divide that dollar amount by the number of new hires that were brought on during the period that the recruiting costs were expensed.
In mathematical terms, CPH is an average. It is the average cost of adding an employee.
Internal recruiting costs refer to the amount of money the company spent on existing employees as part of the recruitment and hiring process. Depending on your organization’s process, internal recruiting costs may include:
- Salary costs of time spent by hiring managers
- Salary costs of talent acquisition team members
- Employee referral bonus payments
External recruiting costs includes all the money the organization pays to outside vendors for recruiting services and related products. Again, depending on your organization’s process, external recruiting costs could include:
- Fees paid to an outside agency
- Fees paid to job boards
- Fees paid for background checks and drug testing
- Cost of aptitude tests
- Marketing expenses specifically for recruitment (such as job fairs)
- Relocation expenses
- Cost of any application tracking systems
Money paid to an employee once they are hired is not part of the CPH calculation. This means costs such as signing bonuses and training costs are not reflected in CPH. Those are generally considered employee development costs.