Despite a strong economic recovery, the Affordable Care Act is pressuring employers to find an optimal balance between total employee compensation and annual company profits.
One of the best ways for companies to manage staffing costs is by improving employee retention, reducing turn-over and focusing on strategies to retain existing, skilled employees. Here’s why this is so important and what companies can do about it.
It’s easy to forget than the true cost of hiring a new employee is far more than just salary and employee benefits, which usually total in the 1.25 to 1.4 times base salary range (meaning that a salary plus benefits package for a $50,000/year employee could equal $62,500 to $70,000).
What can’t be overlooked are other direct and indirect costs such as those associated with recruitment, training and workplace integration.
Recruiting Costs: Recruiting costs alone are estimated to cost the average small company as much as $3,500 per new hire. As you might expect, this cost is generally lower, but not by much, for large companies who enjoy economies of scale. Typical expenses include advertising, time cost of internal recruiter, time cost of people conducting interviews, drug screenings, background checks and various other pre-screening assessments.
Training Costs: Training costs turn out to be one of the costliest investments a company can make since they impact the entire workforce. According to The Association for Talent Development's (ATD) 2014 State of the Industry report, employers spent an average of $1,208 on training, fueling 27 – 36 training hours per employee. Of course these figures are always much higher for new employees since this figure quoted includes current employees who only require continuing education. New hires also require extensive orientation and initial job training.
Workplace Integration Costs: Workplace integration costs include outfitting an employee with physical space, a workstation, ergonomically designed desk chair, computer, telephone, cell phone and more.
All this new hire investment hopefully leads to a productive employee, but it can take a while for companies to see a return on this investment. According to a recent survey of 610 CEOs by Harvard Business School, typical mid-level managers require 6.2 months to reach their break-even point on a new hire investment. According to Eric Koester of MyHighTechStart-Up, "estimates range from 1.5x to 3x of salary for the 'fully-baked' cost of an [new] employee.”
It should come as no surprise that retaining existing, skilled employees is often a company’s best option for taming staffing costs. One of the best ways to build loyalty and reduce turnover is to implement cultural practices that engender positive employee engagement.
According to the American Care Association's (AHCA) "2013 Quality Report", there are three types of employee commitment that come into play when examining employee engagement:
Attaining widespread "Affective Commitment", as you might imagine, should be the goal of any company that wants to retain experienced, trustworthy staff. A corporate strategy that includes great on-boarding, mentoring, engagement, empowerment and recognition is key to engendering this emotional attachment.
And as you might imagine, putting forth a quality employee benefits package and on-going wellness program – one that is competitive with benchmarked industry peers, and one which is compelling to your workforce, is one of the best ways at attain affective commitments.
To learn more about employee engagement, or for assistance with developing creative and comprehensive employee benefits and on-going wellness programs for your workforce, contact us.