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Hiring is one of the most important investments a business makes. But for many companies, recruiting expenses are murky, inconsistent, or poorly tracked. As a result, they either overspend without realizing it—or worse, they underspend and sacrifice candidate quality.
Understanding how to properly categorize and manage recruiting costs isn’t just an accounting exercise—it’s a strategic move that can improve hiring outcomes, reduce financial waste, and help your team operate with clarity and control.
This guide will break down what counts as a recruiting expense, how to categorize different types of costs, and how to build a smarter hiring budget that aligns with your growth goals.
What Counts as a Recruiting Expense (And Why It’s More Than You Think)
At its core, a recruiting expense is any cost associated with finding, attracting, assessing, and onboarding new employees. But not all costs are created equal—some are obvious, others are hidden.
There are two primary types:
- Hard costs are direct and tangible: job board fees, recruiter commissions, background checks, and onboarding software.
- Soft costs are indirect but significant: time lost while positions remain open, hiring manager hours spent in interviews, decreased team morale from understaffing.
Many businesses underestimate soft costs—yet they often account for the majority of your hiring-related spending. Studies suggest soft costs can make up as much as 60% of total recruitment expenses.
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The 3 Main Categories Where Recruiting Expenses Fall
Depending on how your company handles hiring, recruitment costs may fall under different general ledger categories. Here’s how they usually break down:
1. HR (Human Resources) Expenses
This is the most common classification. It includes:
- Salaries for recruiters and HR staff managing the hiring process
- Referral bonuses to employees
- Internal onboarding and training efforts
- In-house assessments or interview tools
2. Marketing Expenses
If you’re actively promoting your company to attract candidates, those costs may fall under marketing. This includes:
- Paid social media ads for job openings
- Sponsored job posts
- Employer branding campaigns
- Recruitment videos or microsites
3. General & Administrative (G&A) Expenses
When recruiting is seen as an operational cost rather than a function-specific initiative, expenses may be classified as G&A. This often includes:
- Recruiting software and applicant tracking systems (ATS)
- Job board subscriptions
- Headhunter or agency fees
- Third-party candidate assessment platforms
Proper classification matters. It not only affects internal reporting but can also influence how much you can deduct at tax time—and how clearly you can spot inefficiencies in your hiring spend.
How to Break Down and Track Your Recruiting Expenses
To make sense of your recruiting spend, it’s helpful to break costs into trackable, repeatable categories. Here’s a sample breakdown with real-world examples:
Expense Type | Category | Example |
Job Board Fees | Marketing | $300 for a LinkedIn Premium listing |
Recruiter Salaries | HR | 20 hours/week @ $45/hr |
External Agency Fee | G&A | 20% of hire’s first-year salary |
Assessment Tools | G&A or HR | $100 tool used across 200 candidates = $0.50/use |
Referral Bonuses | HR | $1,000 paid after 90 days of employment |
Career Fair Booth | Marketing | $2,500 total with printed materials |
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How to Calculate Cost-Per-Hire (And Why Most Companies Get It Wrong)
The industry-standard formula for cost-per-hire is:
(Internal Recruiting Costs + External Recruiting Costs) ÷ Total Number of Hires
- Internal Costs = salaries, benefits, time spent interviewing, internal tools
- External Costs = job boards, agency fees, background checks, assessments
Many businesses calculate this incorrectly by only factoring in external costs. This paints an incomplete picture and underestimates how much hiring is really costing them—especially in terms of time.
Regularly tracking cost-per-hire not only reveals your spend per employee but also helps you forecast future hiring budgets with far greater accuracy.
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How to Build a Recruitment Budget That Actually Works
Building an effective recruiting budget starts with forecasting your hiring needs:
- Project turnover – What percentage of your workforce do you expect to leave in the coming year?
- Plan for growth – Will you be adding new roles or departments?
- Account for unknowns – Maternity leave, unexpected resignations, or skill gaps.
For example, if your company has 100 employees and plans to hire 20 more, with an estimated 10% turnover rate, you’re budgeting for 30–35 hires this year.
From there, break your budget down by:
- Job advertising
- Internal staffing
- External recruiting services
- Tools and technology
- Events and employer branding
- Assessments and onboarding
5 Common Recruiting Budget Mistakes (And How to Avoid Them)
Even well-meaning companies make costly missteps. Here are five to avoid:
- Ignoring soft costs
– You can’t improve what you don’t track. Include time-to-hire, productivity loss, and morale impacts. - Treating one-time costs as ongoing
– Tools you buy once may not require recurring budget. Don’t over-allocate here. - Undervaluing employer branding
– Candidates research you before applying. Not investing here affects pipeline quality. - Mixing recruiting with HR or ops budgets
– Lack of separation leads to blurred KPIs and poor decision-making. - Setting the budget once and forgetting it
– Revisit quarterly. Hiring needs change fast, and your budget should adapt with them.
Why Categorizing Recruiting Expenses Pays Off
Proper categorization helps you:
- Claim legitimate tax deductions
- Justify hiring investments to leadership
- Identify where to cut waste (without hurting candidate quality)
- Align spend with performance metrics like time-to-hire and quality-of-hire
And perhaps most importantly—it puts you in control.
Instead of reacting to budget overruns or pipeline problems after the fact, you’ll have a clear picture of what’s working, what’s not, and how to optimize your hiring efforts in real-time.
Conclusion: Treat Hiring Like the Business Investment It Is
Recruiting isn’t just a tactical task—it’s a strategic investment. By learning how to categorize your recruiting expenses thoughtfully, you move beyond guesswork and into clarity. You give your team the insight to hire faster, better, and more efficiently.
Audit your current budget. Reclassify expenses where needed. Create a clear roadmap for the next 6–12 months. And remember: a smart hiring budget isn’t about spending less—it’s about spending right.
FAQ
A: Recruiting expenses relate specifically to sourcing and hiring new candidates (ads, job boards, agencies), while HR expenses include broader personnel functions like compliance, training, and benefits administration.
A: They can be either. If they’re aimed at talent acquisition (e.g., job boards, social media ads), they often fall under marketing or recruiting—depending on your accounting structure.
A: Yes, most recruiting costs are deductible if correctly categorized and documented. Always check with a tax advisor or accountant for specifics.
A: Use a dedicated spreadsheet, budget management software, or an ATS that includes cost tracking. Group by category and review monthly or quarterly.
