Issues to Consider When Calculating Cost Per Hire

Sep 14, 2017

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Even with a standard formula, companies still have a lot of flexibility when deciding what needs to be included and what should be left out. Issues that a company must decide on when calculating CPH are:

  • How to calculate the salary costs of employees related to recruitment activities
  • Who should be included as a new hire?
  • What time period should be used for the calculation

Gathering the salary costs is one of the biggest stumbling blocks in calculating an accurate CPH. If an employee’s sole job relates to recruitment tasks, the salary cost is straightforward. You simply total that employee’s salary for the time period covered by the calculation. If you are measuring CPH over a year, use the annual salary.

However, most employees have other job duties. In these instances you will need to estimate how many hours the employee spends on recruitment tasks and prorate their salary for the actual number of hours spent on recruitment.

This issue of who should be considered a new hire sounds straightforward, but for many firms it is very complicated. The following personnel are typically not counted as new hires in the CPH standard formula:

  • Consultants and contractors
  • Internal transfers
  • Employees that joined as part of a merger or acquisition
  • Any employee being paid by a third-party

You also need to decide over what time period you are calculating the CPH. The standard is to calculate CPH for a year. Each company will need to decide if they use a calendar year or the fiscal year.

CPH can be useful for seeing the changes in costs throughout the year. It may make sense to calculate the CPH for a month. In this case only costs and employees added during the month are used in the calculation. CAPH can also be calculated on a quarterly basis or after a particular season.

Some firms bring on a lot of new employees during the summer and fall, after college graduations. There may be some use in seeing what the CPH is for this “hiring season”.

However, because the calculation can be labor intensive, most firms will only need an annual CPH.

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Topics: Cost Per Hire

Todd Miller

Written by Todd Miller

Director of Marketing, DHR

Todd leads DHR’s marketing department and is responsible for overall marketing strategy and execution. With nearly 15 years in the sourcing services and solutions space, Todd provides interesting insight on a variety of topics in this fast-paced and ever-changing industry.

Todd lives in Scottsdale with his two daughters and Collie/Shepard. One is a good boy.

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