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| Path: Main Street > Resources/Library > Research Articles > Feature Article |
It will cost you $4,000 to replace just one $8 per hour, full-time employee
By Noel Paiement
July 13, 2009
When an employee leaves an organization they incur both indirect and direct costs. Direct costs include separation, vacancy, replacement, and training expenses. In addition, there is a performance differential: The difference in productivity between those who leave and their replacements.
There are also numerous indirect costs. When an employee no longer works at an organization there are normally customer service disruptions, emotional costs, a loss of morale, and uncompensated increased workloads other workers assume because of vacancies. The remaining employees often burnout, absenteeism frequently increases, and productivity decreases.
The American Management Association conducted a study that found that the cost of hiring and training a new employee can vary from 25% to 200% of an employee’s annual compensation. Generally speaking, the more an employee earns, the more money it costs to replace them. The study found that the turnover cost for a full-time employee making $8 per hour was $4,000.
Having fewer employees quit saves you money. For example, if you have a full-time employee making $8 per hour and she quits after five years, she has cost your organization $4,000 in turnover costs. But, imagine this: If you have to replace just one of your people each year, in five years you'll have lost $20,000!
How much is employee turnover costing you?
Use this free web-based turnover cost calculator and find out. View the video tutorial, then using the calculator, modify the default values to match your situtation.We all know that employee turnover is very expensive. But how do you reduce turnover and save thousands of dollars? You become an employer of choice.
An employer of choice is an organization whose employees think it is a great place to work. When organizations are great places to work, they have fewer employees quit, have lower voluntary employee turnover costs, and greater numbers of women returning from maternity leaves.
When employees love working for their employer, they normally do not leave. A Towers Perrin 2007-2008 Global Workforce Survey discovered that the more engaged the workforce, the greater the number of employees intending to remain with their current employer. This results in fewer people quitting, which reduces turnover costs.
In order to be an employer of choice, companies need to have benefits and activities that most other organizations do not have, and they need to have engaged employees.
Engaged employees normally want to know the desired expectations for their role so they can meet and exceed them. According to the Gallup Management Journal, they are usually consistently high performers who work with passion and feel connected to their organization. In addition, they drive innovation and move the organization forward.
The journal surveyed U.S. employees and discovered that 29% are engaged, 56% are not engaged, and 15% are actively disengaged.
Does employee engagement really make a difference? Hewitt Associates' 2009 annual survey of 115,000 employees found that highly engaged employees are more productive, cost employers less in disability expenses, and take more than half as many days off, on average, than disgruntled employees due to emotional, physical, or mental fatigue.
There are several processes and steps that can be carried out in order to have engaged employees:
1. Have an efficient and professional hiring process
If you can hire the right people for the right positions (the ones they are most suitable for) and who are a fit for your organization’s culture, your new hires are more likely to be engaged and effective in their new positions.2. Onboard new employees
Onboarding, also referred to as "new employee orientation," can have a significant impact on employee engagement and, therefore, employee satisfaction and retention.Managers should communicate with new hires, introduce the new employee to other employees, and ensure that the new hire has the equipment and tools they need to perform their job. In addition, new employees should be told what is expected of them and be provided with sufficient training.
3. Conduct regular employee satisfaction surveys
It is important to survey employees on a regular basis. In addition to sending the message to your employees that you care about their well-being, it lets you know what makes them happy, what their concerns are, what their suggestions for improvement are, and gives you solid information that you can use to make improvements that will enable your organization to have more engaged employees.4. Touch base with employees daily
One of the most important things you can do is to touch base with your employees on a daily basis. Check in with your employees and make sure they are doing alright. Let your employees know what you are working on and discuss important messages and goals. Checking in with employees on a daily basis will build trust with your employees, let you know what employees are thinking and concerned about, enhance your relationships as you and they will know more about each other’s life outside of work, and is more efficient since quick information sharing saves time.5. Meet with your direct reports every two weeks
At least every two weeks, formally meet with employees whose performance you are directly responsible for.Normally, you will want to discuss what is going well and what is not going well. Do you have any suggestions for improvement you can offer the employee? Does the employee have any concerns? Any ideas for making improvements? Is there any way you can help the employee?
The employee’s latest learning and development plan should be reviewed and discussed. Is progress being made? Are there any challenges? Are there any changes to the employee’s career goals?
In addition, the employee’s current performance plan should be reviewed. Are the objectives and goals on track to be met? If not, why not and what can be done to improve the situation?
If the timeline for the performance plan has passed - plans normally run for three months - review the results, along with your performance rating and comments, as well as employee comments.
These regular meetings are also great opportunities to discuss team and organizational information. Employees can ask questions and/or raise concerns in confidence.
6. At least every three months update employee rankings
Having accurate rankings for your employees will greatly assist you with your planning. Who should be promoted? Who needs more dedicated coaching? Who should have the largest salary increase? Who should not receive a large salary increase? Where should training dollars be spent? Who should not be part of your team?7. Acknowledge and celebrate employees’ birthdays and anniversaries with your organization
Consider acknowledging or celebrating your employees’ anniversaries with your organization, as well as their birthdays.8. At regular staff meetings, review recognition comments that have been posted and acknowledge employees
There needs to be a quick and easy way for team members to recognize the positive things that their colleagues have done. Acknowledging employees who have been recognized by their peers reinforces the positive behaviours that took place, ensures those who need to be acknowledged and thanked are acknowledged and thanked, shares ideas, and often promotes a team discussion of issues and ways of making things better.Improving employee satisfaction
Organizations need to be creative when implementing benefits and carrying out activities that help them become an employer of choice. Listening to and talking with employees is crucial when finding out what benefits and activities to provide. Feedback on employee satisfaction surveys is normally quite helpful.Employees normally like to have flexibility when caring for their loved ones. A suggestion would be to offer each full-time employee up to five family days a year. These days are paid days off that employees can use to care for an immediate family member who is sick, take a family member or themselves to a medical appointment, or attend a funeral.
Organizations should have an employee recognition and reward program. Most managers do not frequently reward and recognize employees, causing employees to feel unappreciated and unhappy.
Some unique benefits might include offering each employee an annual $150 fitness allowance, paying for half of a Costco membership, and one paid workday a year to let employees volunteer with a local charity.
A couple of work days a year, organizations should have fun days. These days could involve anything from employees going bowling to going to the beach and having a barbeque.
When organizations focus on having engaged employees and offer benefits and activities that other companies do not offer, they will become an employer of choice. As a result, they will save thousands of dollars by having less employer turnover.
Noel Paiement is the founder and President of West Edge Solutions Inc. By providing experienced guidance and operating Texel, a web-based software application, West Edge Solutions Inc. helps organizations become an Employer of Choice. For a free 17-page guide entitled "How To Have Engaged Employees, Improved Performance, and Reduced Costs By Having Lower Voluntary Employee Turnover: A Free Guide for Managers," email CharityVillage@WestEdgeSolutions.com.
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