Pros and cons of hiring internally vs externally

How to decide between internal and external hiring.

Laptop with a job application form displayed

When your company has a job opening, you have two options: hire internally or externally. 

Internal hiring involves promoting or transferring an employee who already works at your company to fill the job opening. By contrast, external hiring is the process of recruiting an entirely new candidate to hire for the job. Deciding between internal and external hiring isn’t easy. There are advantages and potential drawbacks to both. 

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Rather than creating a policy of only hiring internally or externally, it’s wise to consider both options when a job opening pops up at your company. Internal hiring might make sense in some situations, while external hiring is more appropriate in others. 

Why companies hire internally

Hiring teams interested in focusing their search efforts internally have several options. It’s important to cultivate a company culture of internal recruitment in which managers help employees reach their career goals and nurture their growth. 

If a job becomes available, you can post the listing internally first. This gives people within your organization the opportunity to apply before you open it up to external applicants, if necessary. You could also convert a contractor to a full-time employee.  

The pros of hiring internally

Pre-existing knowledge of the company

When you hire internally, one benefit is that the employee is already familiar with your company culture and structure. They won’t need as much time to adjust as an external candidate typically would. Internal hires are generally able to hit the ground running and apply their pre-existing knowledge of the company to their new roles. 

Quicker hiring process

Hiring can be a time-consuming process. In the U.S., the hiring process lasts an average of about 24 days. Hiring internally shortens that timespan considerably. Your human resources department typically doesn’t need to conduct as many interviews with internal candidates or follow up on references and background checks. The ability to reduce or eliminate these steps makes the hiring process move much faster than with an external candidate. 

Lower hiring costs

The quicker hiring process for internal hires also translates to lower hiring costs. Hiring internally can lead to additional compensation savings, too. Initial compensation for external hires is around 18% higher than it is for internal hires. 

Access to clear performance history

Even with a comprehensive hiring process, bringing in an external hire still requires a leap of faith because you don’t know for sure what kind of worker they will be. This isn’t the case with internal hires. Because these candidates already work for your company, you have easy access to their performance history and specific details about their productivity and what their strengths and weaknesses are. 

Retain developed talent

Your organization spends time and money developing talent at your company. Hiring internally is a way to retain that developed talent and keep them from moving on to your competitors.  

The cons of hiring internally

Needing to backfill the positions internal candidates leave behind

The main disadvantage of hiring internal candidates is that they leave behind job openings in their previous positions. You will have to either backfill those positions or distribute the workload among the remaining employees. Another option is to hire a contractor instead of an employee to cover the workload.  

Potential to damage employee morale

Though internal hiring is typically associated with improved employee morale, it also has the potential to do some damage in that area. Employees who want the position might feel competitive. Those not hired for the role may even be tempted to leave your company. 

Why companies hire externally

Hiring externally is your company’s other option for filling open job positions. Opening up your job listings to external candidates is common and offers some advantages over internal hiring, though it’s not without its disadvantages, either. 

The pros of hiring externally

Fresh ideas and skill sets

After a while, companies can become more homogeneous and stagnant. Hiring a new employee is a way to refresh the company with new ideas and skill sets. Someone who has never worked for your company before might have fresh insights and perspectives that help them succeed at the job, especially if the organization is looking to expand geographically or develop a new product or service. 

Expand the company

If you only ever hire internally, you will never grow the company and expand its capabilities. Hiring externally is a way to add to your workforce and set the company up for continued growth. 

Gain access to a wider talent pool

However strong and sizable your workforce is, hiring externally offers access to an even wider talent pool. Receiving applications from a larger talent pool increases the odds that you’ll find the perfect candidate for the job. 

The cons of hiring externally

Longer training period

Because external hires aren’t already familiar with your company’s culture and procedures, the training period for these candidates is generally much longer than with internal hires. They need time to adjust to the company culture and more training to become familiar with their duties. 

Higher hiring costs

The longer training period for external hires contributes to increased hiring costs. Beyond the time and money spent on longer training, you will also need to spend more on advertising the job to external candidates. Interviewing external job applicants is more time-consuming and expensive. 

One way to reduce your hiring costs, whether you hire internally or externally, is to use Oyster's Global Employment Platform. Oyster handles all the compliance, payroll, and benefits headaches for you to make the hiring process a breeze. Turn to Oyster to scale your team and bring on top talent with ease. 

About Oyster

Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.

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