Rising Costs of Hiring and Turnover Shift Focus to Promotions, Other Strategies


Hiring new employees is getting increasingly expensive, but employers can combat these costs by ramping up internal promotion strategies and making sure external hires are a long-term fit with the company. 

Employers are experiencing high turnover rates, increased salaries, and difficulty finding workers with specialized skill sets in the current competitive labor market, said Sandra McLellan, North American rewards practice leader at Willis Towers Watson.

Another potential contributing factor to rising hiring costs is the gig economy, McLellan said. It’s a lot easier now for people with specialized talents to find their own work and get that work done when and how they prefer, such as through telework, flexible schedules, or unusual hours, she said. 

Money spent on recruitment, onboarding, and compensation for new hires may be here to stay, but strategies that fill open positions from within an organization or find candidates with long-term potential, could offset some of those expenses, practitioners said. 

Employer outlays involved in finding new workers rose 36 percent from an average of $2,935 per employee in 2012 to $3,999 in 2016, according to research from the Society for Human Resource Management. 

In addition, job openings increased from 3.6 million to 5.5 million since 2012, and employers are taking longer to fill positions: 36 days in 2016, up from 33 in 2012. The research is based on data from SHRM’s Talent Acquisition Benchmarking database and the Bureau of Labor Statistics. 

Factors to Consider

Workers are increasingly joining the gig economy and choosing voluntarily to work in different jobs and not pick just one employer, said Matthew Steinberg, a labor and employment attorney for Akerman LLP in New York. 

If employers want a full-time, committed worker, they will have to pay for it, in both salary and benefits offered. Employees want innovative benefits, flexibility, and other working arrangements that often cost employers money, Steinberg said. 

On the other side of the coin, some competitive industries, such as technology, have encouraged entrants to the labor market to be highly specialized, and companies are paying for these specialized skill sets, he said. 

Organizations that haven’t updated current salary averages may also find themselves behind the ball for market rates, said Kelly Marinelli, principal people strategy consultant for Solve HR Inc. Labor costs are often budgeted on what a position was paid two or three years ago, so employers face challenges funding future hiring needs, she said. 

Adjusting to current market rates can have expensive ripple effects as well, according to Marinelli, because employers will also need to address the salary discrepancy with current employees in similar positions if they don’t want to lose them to competitors. 

According to McLellan, HR should think about implementing strategies that offer more opportunities for promotion or change within an organization to reduce hiring costs in the long-term.

First, HR should assess whether employees are aware of the opportunities they can pursue within the organization. "It shouldn’t be easier to find information on jobs outside of a company than jobs within a company," she said.

For jobs that require an external hire, HR should strive to find individuals who not only can do the job but also be a fit long term, Steinberg said. "HR can really drill down on what it would take to succeed at their company in a sustainable way" and look for candidates who have those qualities, he said. 

Although the strategy may not drive down hiring costs in the short term, it could bring down costs over a longer period of time by reducing turnover, Steinberg said. 

Here's a recap of the key takeaways for HR professionals seeking to dampen the effects of rising turnover and hiring costs: 

  • Make compensation competitive in terms of both salary and benefits;
  • Provide existing employees internal opportunities and make sure information on job openings is easy for them to find; and
  • When hiring externally, determine key qualities for sustainable success and find candidates who will be a long-term fit.

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