Finance

Software Developer Recruitment: The True Financial Cost For Employers

In the words of SalesForce CEO Marc Benioff, “Acquiring the right talent is the most important key to growth […] Hiring was – and still is – the most important thing we do”. A successful recruitment drive is a great sign of organisational growth and progress. However, the potential pitfalls, risks and financial costs associated with hiring a competent software developer, who is capable of following an organisation’s best practices, are considerable.

It’s estimated that  4 in 10 hires are considered the wrong choice after 18 months at a new company. Moreover, the overall recruitment process itself is a considerable drain on an organisation’s resources: a survey by DevSkiller suggests this cost can be around $32,000. In addition, the recession brought about by Covid-19 has had a profound impact on the labour market. Online job board website CV Library’s October 2020 data suggests that the applicant-to-job ratio for IT positions stands at 18, an 84% year-on-year increase.

2020 is proving to be a challenging year for hiring managers owing to the influx of qualified candidates for software developer roles. This article is aimed at technical recruiters and will explain the four major costs associated with hiring a successful candidate, industry trends and potential solutions to this new environment.

Shortlisting Candidates For Interviews

Recruitment agencies offer a useful option where HR resources are limited, delivering candidates ready for an interview. But demand for developers has allowed agents to charge more than 20% of annual salary in the U.S. The spectrum is more comprehensive  and potentially higher in the UK, where rates are between 15% and 30%.

Enterprises can avoid this by advertising a job via their channels and third parties, typically costing $225-$399 per role advertised. This is a low cost for a large pool of applicants, but it’s only the start of the process and there’s potential drawbacks. Identifying high performing candidates means reviewing all applications, which is too time consuming for internal recruiters and owing to the backlog of applications may also miss points in the CV that shows suitability for the role.

Interviewing Credible Candidates

The time to interview shortlisted candidates has been estimated at 65 person-hours per role, representing $22,750, a high cost for bringing a single member of staff into your organisation. The cost is estimated at $32k, specifically for software developers.

Although  interviews are an essential  means to gauge an employees’ soft skills, industry knowledge and career plans, nevertheless for such a technical role, there are clear limitations. Aside from the high possibility of the candidate lying about their capability, with potentially 80% of candidates lying, technical interviews don’t truly gauge actual coding skills. In fact a study by North Carolina State University and Microsoft pointed out technical interviews are ineffective and “a lot  of well-qualified job candidates are being eliminated”.

Onboarding Process

In terms of the onboarding cost of a new employee, it is relative to the current work performance or productivity of the organisation’s software developers. This cost has been estimated as a $33k loss in productivity for a full-time employee, a significant burden for any organisation. This figure takes into consideration various factors, such internal training programmes and mentoring by more productive members of staff.

This is not a process that should be rushed though because typically 8 and 12 months are required for a new recruit to be equally proficient as their tenured colleagues. In addition, a study by Oxford Economics found that it costs £31,808 in total to properly recruit a new IT employee, but 80% of this cost can be attributed to bringing this employee’s productivity to an optimum level. But the evidence is clear: a Glassdoor survey revealed a robust onboarding process increases productivity by over 70% and retention by 82%.


Mis-Hiring

Having invested in bringing a new employee into the organisation, that person may not turn out to be right for the job. A survey by CareerBuilder revealed that 74% of employers say that they have made a wrong decision regarding a new hire. On the other hand, 23% of new recruits leave within one year.

Quantifying this costly mistake is complex, and in software development, it is argued that the technical debt an employee has produced should be factored in, which is itself difficult to cost, even with the most advanced approach to quantifying code quality. Cross-industry, mis-hiring has been costed as a range between 4x to 15x annual salary, increasing with seniority.

We discuss the effect of a potential mis-hire with the article Software Developer Recruitment: How Companies Can Avoid Mis-Hires

Recession, Digital Transformation and Employment Trends

The Covid-19 induced recession in 2020 had a devastating impact on major economies’ labour markets, but also accelerated digital transformation plans. The U.S. The Bureau of Labour Statistics (BLS) estimated the U-6 unemployment rate (broader measure) in October 2020 to be 12.4%, but lower than the peak of 18% in June. The Eurozone’s latest unemployment rate was 8.4%, but this relatively low figure does not  take into consideration furlough schemes rolled out by various member states’ governments.

Beneath the surface of this unfortunate development, there is a clear partition of the labour market, with technology’s outlook being favourable due to organisations’ digital transformation plans. According to KPMG’s 2020 CIO Survey, technology leaders reported a median an additional 5% IT spend due to Covid-19 and 45% of CIOs expected headcounts to increase, up from 43% in 2019. Moreover, despite a 13 percentage point decline, the survey revealed the majority of CIOs (54%) are still citing a skills shortage as a barrier towards their organisation’s growth.

The findings are similar to the Linux Foundation’s 2020 Open Source Job Report that revealed 37% of hiring managers would  continue as IT professionals, with DevOps and software developers being the most in-demand. Given the U.S. BLS forecasting software developer employment to rise by nearly a third between 2016 and 2026, this means the skills shortage will persist and act as a tailwind for increasing recruitment costs. With the average UK and US staff turnover rate at 15% per year, and the software sector continues  to have the highest industry rate, this means that the trajectory for software developer recruitment costs remains up.