Accounting for the costs of recruiting and training

Abstract

We investigate the investments made by accounting firms into recruiting and training new employees into entry-level positions. This includes developing a model to capture both the direct and indirect investments/ costs associated with recruitment and training. We quantify time, effort, resources, and associated opportunity costs, on entry-level recruits. The model was converted into a quantitative questionnaire and administered to accounting firms. We administered it to twelve accounting firms. The findings from this study build upon earlier studies (Bliss, 2001; Hansen, 1997; Phillips, 1990) which estimated the cost to recruit and train new employees at approximately 150% of their annual salary. Results revealed that the true investment in recruitment and training is significantly greater for the accountants in our study. On average accountants in our study invest an additional 241% of new employees’ annual salary. The findings provide insight into the true financial investments firms make during recruitment and the first year of employee training for entry-level positions. Our model is a simple tool which managers can use to quantify their investments in new employees during their first year of employment. It has proved insightful for accounting firms and has potential for use in other industries. Further, we found that generally new employees do not reach full productivity within their first year of employment. This highlights the importance for employers to retain new employees to maximise their returns on investment.