Recruiting new talent is a critical issue for a growing company. However, hiring represents a significant financial cost that must be carefully anticipated. This becomes even more challenging for startups or fast-growing companies operating in uncertain environments.
So, how can you plan your hiring strategy and finance it without jeopardizing your company’s cash flow? How can you attract top talent with a limited budget? Follow the guide.
Understanding the challenges of managing payroll
Payroll represents the total gross wages of a company’s employees. It is an essential financial indicator as it constitutes a fixed expense inherent to any company’s budget, helping assess the impact of the workforce on revenue.
Payroll is often the largest expense for a company, especially in service industries. It typically accounts for 20% to 80% of total costs. Therefore, forecasting payroll growth is crucial for managing the company’s profitability, especially for those experiencing rapid growth.
Managing payroll is a balancing act between finance and human resources, requiring a company to strike a balance between two factors:
- Setting wages high enough to motivate employees but low enough to maintain profitability.
- Hiring the right number of employees to handle the workload and meet business objectives.
Recruiting: what are the financial costs?
To financially anticipate recruitment, it’s essential to understand the associated costs. Besides the salaries of new hires, numerous indirect costs must also be considered, such as:
Indirect costs related to recruitment
Beyond salaries, you must anticipate several costs such as employer charges, equipment, relocation and setup assistance for new hires, bonuses, and transport expenses if covered by the company.
You also need to estimate the cost of onboarding new employees. New hires are rarely immediately productive; an onboarding period should be expected, during which the employee may require training.
Costs related to the recruitment process
Estimate the time spent by the HR team if recruitment is handled internally, as well as the time required by the new employee’s future manager to find and interview candidates. You also need to account for the time spent by the administrative and legal teams to prepare contracts. These hours represent a cost that must be considered.
Additionally, don’t overlook recruitment process expenses, such as talent-sourcing tools, subscriptions to candidate databases, recruitment fairs, etc.
When an external agency handles recruitment, for instance, for technical roles in digital or technology sectors, budget for the associated costs. In France, according to L’École du Recrutement, these recruitment costs typically range between €5,000 and €8,000 per hire.
Recruiting: how to build your budget?
Hiring an employee is a significant investment that can quickly escalate if the company recruits extensively without a proper hiring plan or financial oversight.
It’s highly recommended to establish a forecast budget, typically on an annual basis, to anticipate recruitment needs and make informed decisions. Here are some best practices.
Anticipating recruitment expenses
First, it’s essential to understand your company’s vision and growth objectives, as well as its operational situation. What are the company’s growth goals? Can the current teams meet these goals, or is additional support needed? What positions are required to achieve this?
In short, you must forecast the future and assess the ROI of each potential hire to prioritize strategic recruitments. This allows you to define target profiles and expected compensation, linking your company’s financial objectives with workforce and payroll planning.
Remember to anticipate factors such as salary increases for current employees and expected turnover. Besides planning for new positions, you must also account for replacement hires as employees leave the company.
Another unforeseen cost to consider is failed hires, where an employee leaves the company within a year. According to recruitment firm Hays, this cost averages around €45,000, although it varies based on the employee’s responsibilities.
Evaluating available financing
Once you have a clear understanding of your recruitment needs, you’ll need to evaluate available financial resources.
In addition to revenue generated by the company or potential fundraising, you can explore grants, public employment aids, and subsidies.
For instance, regional aids exist in France, such as the PM’up program in Île-de-France, which offers a subsidy covering up to 50% of eligible expenses, including strategic hires. For junior roles, apprenticeship contracts are also heavily subsidized by the state.
After assessing your expenses and resources, you can establish a solid recruitment forecast budget. Our recommendation: aim to achieve your company’s ambitions but be realistic. If you lack the means, don’t plan for hires that could endanger your company’s financial health.
Recruitment budget: a close collaboration between HR and Finance
Financial planning for recruitment can only succeed if HR and finance teams work closely together.
The initial work of estimating recruitment expenses involves internal needs assessment and the creation of job descriptions and salary scales, typically handled by HR. A good recruitment budget relies on trust and information sharing between HR and finance.
In return, the finance team must provide HR with clear visibility on the recruitment budget to enable effective hiring processes. For example, before launching a recruitment campaign, HR should know the salary range to target appropriate profiles and negotiate effectively.
Finally, HR and finance should collaborate to find ways to reduce recruitment costs, such as:
- Employee retention to avoid turnover and replacement costs.
- Building a strong employer brand to attract talent while minimizing sourcing costs.
- Reducing the number of failed hires to prevent financial repercussions, which can be substantial.
- Initiatives like referral programs to acquire new talent at lower costs.
Conclusion
Financially anticipating recruitment is crucial for ensuring healthy, controlled growth. Establishing a budget is a key step in managing payroll, particularly in startups and scale-ups planning large volumes of hires to support growth. While this task can be complex, it’s indispensable.
Need help anticipating your recruitment budget? Consider reaching out to a part-time CFO. Discover Iter Advisors.