Outsourced, Agency or In-House Recruitment: Here’s how they stack up

Who you hire is one of the most important decisions your business will ever have to make, but we rarely discuss how you hire. It’s easy to agree that hiring the best possible candidate using a process that is both time and cost-effective is the ideal way to go.

Many businesses go down the DIY route of recruitment by going through the process on their own. From the outset, recruiting may not seem like a difficult or lengthy process, but hiring the wrong individual could cost your business an immeasurable sum of time and money, so getting it right is essential.

The main hurdle many businesses don’t consider when hiring on their own is the amount of work that goes into finding the right person. Every recruitment professional has a methodical and strategic approach to locating an individual who is not only capable of the job at hand, but fits in with your business’s ideals, culture, environment and shares a vision for your goals. Just by looking at the table at the bottom of the page, it’s easy to see just how many steps are involved in the recruitment process.

So, we’ve dissected and compared the 3 most popular methods of recruitment to give you a fair comparison.

1.    In-House

If you are thinking about hiring in-house, it’s best you have a dedicated HR Manager trained in the art of finding the perfect employee. Doing it yourself, or using one of your employees (e.g. the Marketing Manager) could end up costing you much more than hiring an HR Manager. Consider the time you or your employee won’t be able to spend on your main function if you’re spending time recruiting, and if the wrong hiring decision is made the results could be disastrous. An in-house HR Manager dedicates their time to doing the job right with no other distractions. They work in your office space and get to know your business well. They are there every step of the way from recruitment to on-boarding and can also manage training, performance reviews and HR matters as they arise.

Cost

So, what does a dedicated HR Manager cost? To put it simply: a salary. It’s a full time position that commands a salary package. To put this in perspective, we’ve identified the going rate for an HR Manager in NSW:

  • Full-time salary in Sydney for an HR Manager in 2016 is $120k - $200k + Super + any Bonus/Incentive Schemes (Hudson Salary Guide 2016)
  • Full-time salary in Newcastle for an HR Manager is $80k - $175k + Super + any Bonus/Incentive Schemes (Forsythe Salaries 2016)

Pros

  • On-hand resource to handle all HR matters as they arise.
  • They know your company, the culture, the people and the roles very well.
  • You know what your HR costs will be for the year so no nasty surprises.

Cons

  • HR Managers command a substantial salary, which can’t always be justified unless you have ongoing recruitment and HR matters that need attending to.
  • An idle resource when HR matters and recruitment needs are slower.

The bottom line

Better for larger companies with big turnover. If you recruit frequently and are able to justify a full-time salary dedicated to a role for this function, in-house might be the way to go. But if you don’t recruit in large volumes throughout the year, you’ll be wasting your money.

2.    Recruitment Agency

Going through a recruitment agency is one of the most well-known and popular methods of recruiting as it saves your business the hassle of performing the task yourself. In effect, this allows you and your staff to stay focused on your own roles. Recruitment agencies perform the task from their own offices, separate from you and your place of work. They need to make assumptions about the idiosyncrasies of the role, company and culture. Furthermore, a recruitment agency does not get involved in on-boarding the staff member once they have been placed. A recruiter in an agency typically works for a commission, so there is pressure to fill the role quickly and as a result, sometimes an unsuitable candidate is placed.

Cost 

Here’s the kicker – agencies charge you what’s called a ‘Placement Fee’. This is a nice way of saying ‘commission’ and the fee is a percentage of the total package you are planning to pay your new employee. Typical placement fees range from 15% - 25%. Let’s put that into perspective:

  • An $80k base salary + super ($87,600 incl. super) + 10% bonus (OTE approx. $95,600) is looking at a placement fee of 18% with Kelly Services or 20.5% with Hays. Therefore equating to a placement fee of $17,208 - $19,598!

Pros

  • Flexibility – you only use them when you need them.
  • No infrastructure costs as they work out of their own office.

Cons

  • Very costly – just two placements can equal the cost of an HR manager’s salary.
  • Lack of knowledge – recruitment agencies don't get to know the idiosyncrasies of the role, company and culture. They are located off-site and function independently from your business.
  • They don't take ownership of the position – agencies do not get involved in on-boarding the staff member once they have placed them. They get their fee and move on to the next placement.
  • Sales people mentality - they push candidates on you even if they are not entirely suitable in order to make a commission.
  • Value for money - The work they do is not transparent - you pay a large fee and can feel short changed in terms of value.

The bottom line

You may lean towards this option if you have no need for a full-time Recruiter/HR Manager, but it’s going to set you back a tidy sum and the results aren’t guaranteed. The sales-people mentality can be a dangerous thing to your business, think of what else you could spend $17-$20k on!

3.    Outsourced HR & Recruitment

So you don’t want to hire a full-time HR Manager, and you can see the risks and costs associated with using a recruitment agency. What options are you left with? The magic word is: outsourcing. You get the benefits of a full-time HR Manager such as a high level of expertise in the field, an integrated member of your team so therefore an understanding of your company culture, and an a-z facilitator able to manage every possible function related to human resources within your business – talent sourcing and recruitment, on-boarding, training, performance management and so on. But the key difference is flexibility - you only pay for it when you need it, and you don’t need the infrastructure to support the role as the outsourced HR & Recruitment Manager works remotely.  

Cost

With pricing packages tailored to suit your team’s needs and budget, outsourcing HR Management and Recruitment will cost you varying amounts. Project Ops charge you purely for the time it takes to fill the role. For example:

  • Recruitment - The time taken to recruit a (mid-level) Online Marketing Manager with an $80k base salary, will cost you around $5k give or take, depending on the number of applicants and the number of interview rounds you require.
  • HR Management - Ongoing HR Management fees will depend on the scale of work but an entry package with Project Ops, which includes: HR Review; Employment Agreements; HR Documentation; HR Policy Manual & Employee Guidelines; HR Help Desk; and Onsite HR Support, will you cost you around $1800/month if you have up to 10 employees.

Pros

  • Flexibility - you only use them when you need them.
  • Cost effective - you pay only for work done.
  • No infrastructure costs as they work remotely.
  • They act as an integrated member of your team.
  • Access to talent without the full time price tag.
  • All tasks associated with HR Management are taken care of including ensuring the staff member is properly setup in the role.
  • No need to distract an existing staff member from their primary role.

Cons

  • Can become costly if you have multiple positions to hire frequently. However, at this point you really should consider hiring a full time HR Manager to perform this role, which Project Ops can do on your behalf.

The bottom line

Outsourced HR and Recruitment is a perfect choice for any business of any size looking to recruit from time to time, or for a set duration of time – short or long term. As your business’s needs change, you’re able to stop and start the services provided by an outsourced HR & Recruitment Manager so you’re only spending money on the function, as it’s needed. You’ll also be saving money by not having to fork out large commissions for placements, and an outsourced recruiter is a member of your team, not an agency – so quality, transparency and accuracy is guaranteed.

 

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Project Ops are one of Australia’s leading outsourcing specialists, providing some of Australia’s best talent to businesses of all sizes on short or long-term contracts. Specialising in Human Resources (HR), Recruitment, Business Operations, Change Management, Project Management and Event Management.

If you’re thinking about outsourcing your HR or Recruitment needs, start by downloading our free HR Health Check and find out for yourself if outsourcing is right for your business. Alternatively, if you would like to discuss other areas, please get in touch!

 

†Additional items.

*Figures are approximate and based on recruiting for a typical $80k base salary + super + 10% bonus (OTE approx. $95,600) role which attracts 100+ applicants.

++ Plus super, plus bonus/incentives