eBusiness Blog

Is Employee Turnover Costs Robbing Your Profit?

The key to reducing high turnover and its associated crippling costs

Employee Turnover Costs Robbing Your Profit

In this case size (business size, that is) doesn’t matter. High turnover costs are a significant problem for all businesses. However very few discuss the true extended costs and the multiple ways that it impacts the business.

Would it surprise you to know that it can take anywhere from six to nine months wages to replace and train a new replacement?

I’ve calculated some exact stats. Let’s take a minimum wage employee who leaves the company, sometimes without notice. Not only will productivity get a hit, but also some of the emotional effects. They include shock, frustration, and stress not only for the hiring manager, but also for those employees who have to take on more responsibilities, and grieving the loss of a colleague and friend.

Let’s assume the hiring manager is earning $90,000 a year (roughly, $43.00 per hour). It will take hours from their work day to finish the exit paperwork, release an ad to find another candidate, review applications, interview and select a new recruit.

Then, there is onboarding and training to get the person to the same level as the latest employee. In simple terms, the total of separation costs, hiring and pre-employment costs, and training costs will be $5,300.00 to replace a minimum wage employee.

Losing a Millennial employee can cost the company $15,000 to $25,000 but it’s actually a lot more when you weigh in a few additional variables mentioned earlier.

Other research shows that turnover costs can add up to 213% of the salary for a highly trained position! So if a highly trained executive is making $120,000 a year, the true loss could be up to $255,600 to the company!

The key to reducing high turnover and its associated crippling costs is to take time… much more time… to choose your new hire than ever before.

The hiring and training processes have changed and it still surprises me that businesses, of all sizes, often spend very little time to find their next candidate.

Why? The onboarding process takes time and most managers are run ragged and can’t prioritize the appropriate time for choosing the best talent.

Glancing at an application or resume and saying, “When can you begin?” no longer serves you.

In fact, all employees, especially the Millennials, want to feel they will be engaged, valued, challenged, and well trained. They will require continuous learning opportunities. Mentoring is one of the most effective, cost efficient ways of increasing employee longevity benefiting the mentor, the mentee and driving significant retention.

Your business relies on the talent you hire.

Carve out the time to have a conversation with your employees to see how they are doing, what challenges they are facing and how you can support them.

This is just the beginning of hiring and retaining your best people. But now, you’ve been reminded of the consequences of hiring on the spot or not taking the steps to value and prepare your hires for a great job with you!

About the Author, JoAnne Marlow, B. Comm., B. Ed., MA Leadership Principal

JoAnne Marlow

JoAnne Marlow is a leading authority, best selling author, and thought-leader in multi-generational communication and management systems. She offers CEOs and their managers the information and guidance they need to optimize their cross-generational employees' strengths and productivity to access their potential and achieve outstanding results.

Her latest book is available on Amazon: "25 Powerful Strategies to Hire and Successfully Retain Millennials".


The Pros and Cons of Hiring Employees Vs. Independent Contractors

What all business owners must consider before deciding which to hire

The Pros and Cons of Hiring Employees Vs. Independent Contractors

As your small business grows, you’ve concluded it’s all too much to handle by yourself – right? Or, you already have employees and are ready to expand your team so you can scale your business to the next level.

Now you need to explore the pluses and minuses of each type of helper and determine which is the best fit for you.

In this article, I share some of the pros and cons of hiring employees and independent contractors to help you make the ideal choice for your business.

In the US, the Internal Revenue Service (IRS) has very strict guidelines you need to familiarize yourself with as a precursor to making any hiring decision.

In addition to the IRS, there are a number of other state and federal agencies that will audit your business if it looks to them as if you might have misclassified employees as independent contractors.

First, let’s explore some of the pros and cons between employees and contractors:

Pros and Cons of Hiring Employees

Pros:

  1. You have significantly more management control over what, how & when the work gets done.
  2. Employees generally feel more part of the team and will go above & beyond to do a great job.
  3. Turnover is lower when employees enjoy more job security – so teamwork, quality, efficiency and customer service tends to be higher.
  4. Employees complete an application for employment, certifying all the information is accurate and giving you permission to conduct background checks and drug tests.
  5. If they get hurt on the job, they are covered by your workers’ compensation insurance so you avoid expensive medical and compensation costs.
  6. All the work performed is the property of the business owner, even creative work subject to copyrights and patents.
  7. It’s easier to put together a recruiting process to weed out potential bad hires so you can hire the best employees that fit well with the culture you are creating.
  8. You can delegate tasks to them so you can focus on doing what you are best at and enjoy the most.
  9. They are your own brand ambassadors and serve as your best marketers.

Cons:

  1. You need to provide employees with a space, equipment and supplies to conduct their work.
  2. You need an employee handbook so they understand your company rules, benefits and procedures. You can also use it to manage your team.
  3. If business slows down periodically, you are still paying for the person to come to work even when there isn’t enough to do to make it worth the cost.
  4. Employees can file legal claims against you for a variety of reasons such as employment discrimination, unfair pay practices and wrongful termination.
  5. If you decide to layoff an employee due to a lack of work, you’ve lost the training investment you’ve already made and will need to incur recruiting and training costs to hire a replacement if they aren’t available or interested when work picks up again.
  6. Firing team members can have a negative impact on employee morale of remaining staff if they think you were unfair or if they now must carry the extra workload.
  7. You are responsible for collecting taxes from the employees’ paycheck and paying your share of their Social Security and Medicare taxes.
  8. You must track all hours worked and pay time and one-half for employees who qualify for overtime pay. Federal law requires overtime pay after 40 hours per week but check with your state/province on any overtime pay that’s also calculated after 8 hours per day.
  9. In most states/provinces, you must pay unemployment and workers’ compensation insurance.
  10. Over time, employees will expect to receive pay increases along with some benefits like vacation and paid time off for personal business / sick pay.

Pros and Cons of Hiring Independent Contractors. A.k.a. Consultants, Freelancers & Virtual Assistants

The IRS defines an independent contractor as an individual who the business owner and/or their designee has the right to control or direct only the result of the work and not what will be done or how it will be done.

An example of this would be a copywriter that has her own business and works with multiple business owners to write their marketing materials.

Or those that provide services such as bookkeeping, human resources, safety administration, computer support or project management on an as-needed basis.

Pros:

  1. Typically, IC’s enjoy a higher rate of pay than employees since there are no additional costs.
  2. Most IC’s are experts in their field and can quickly get up-to-speed on your needs, so it’s more efficient to hire them if their expertise is not needed full-time.
  3. Depending on the language in your IC agreement, it’s easy to let an IC go once a project is finished or you no longer need or want their services.
  4. IC’s stay up on the latest technology, regulations and licensing requirements and bear any costs to do so.
  5. By creating a Scope of Work agreement, both you and the contractor agree on the working relationship details.

Cons:

  1. You have less control over the work of an IC because although they work on due dates, they independently determine how best to get the work done.
  2. They tend to work remotely so face-time is limited and it’s a little harder to develop a relationship like you do when with employees you see every day.
  3. When an IC finishes an assignment, they might not be available the next time you need them. Or if it is a rush job, they might charge higher prices to move to the front of the line.
  4. If an IC is injured on the job, they can sue you for damages because they are not covered under your workers’ compensation insurance plan.
  5. Federal governing agencies watch small businesses very closely. It is to the government’s benefit when an employer collects taxes from employees and pays the company portion of the required taxes because those taxes support the government’s operating budget. Otherwise, IC’s often under-report their earnings and fail to pay both the employee and employer taxes.
  6. If they work exclusively for you full time, there’s a good chance they are an “employee” rather than an IC – and you are legally required to treat them accordingly.
  7. They are less likely to serve as a brand ambassador for you – it’s their brand they will promote – not yours.

There is a place for both employees and independent contractors in running small businesses. It really depends on what you need and how much control you want.

Mistakes in mis-classifying employees as independent contractors is very expensive, subjecting you to fines and back pay for current and past employees. If an audit determines that you knew, or should have known, that you were paying employees as independent contractors, in addition to stiff penalties you will have to go back for 3 years and correct the mistakes.

If you are unsure if you are needing to classify your workers as employees or independent contractors, contact an HR professional to give you the advice you need.

About the Author, Katherine Hartvickson

Kathryn Wilking

Katherine Hartvickson is the founder and president of Hartvickson & Associates, Inc. dba Quantum Ascendance. She is an experienced business consultant and success coach. Since leaving the corporate world in 2009, her clients include business owners and other seriously committed professionals and entrepreneurs who want to gain the confidence and skills to break through the barriers of success and achieve their ideal life.

What separates her service from others is her experience in leading large teams and developing top performers in corporate environments and because of this, clients achieve individual & financial rewards and the recognition they earned without sacrificing their personal life. If you are interested in knowing more, she can be reached at www.QuantumAscendance.com.


Hire a Winning Team using Feng Shui (or be your own winning team!)

Personal Element Support Cycle

There is more to feng shui than simply moving furniture around; feng shui relates to energy, and this extends to people as well! There is the unseen presence of energy in different personalities that can make-or-break the team in your business.

In feng shui, each of the earth’s properties is related to a personality type. Therefore, each person relates to a tangible item: wood, fire, earth, metal or water. These elements are naturally arranged to help and support each other, similar to how they work in nature.

It is easy to see the parallels in nature: water makes trees grow, wood feeds the fire, ash turns to earth then, compresses to form metals… that move water; and the cycle continues.  It’s the same with people.

The extroverts are primarily wood-people and fire-people. They are both energetic, personal and hard working so they make great sales people, event organizers, actors and politicians.

Wood-people are enthusiastic and can run with any idea. They gather people to help and are great at delegating. Fire-people feed off these ideas; they need to be in the limelight and are passionate fighters for their cause.

The introverts are metal-people and water people. These groups work well at a slower pace. Metal-people are notorious for enforcing policy and procedures at their workplace.

They are meticulous at their jobs and make great employees in banking or accounting, health and safety, draftsmen or in the IT industry. Metal-people can be quite creative and make dedicated team players.

Water-people are also quiet, but more pontifical in their approach. They have no need for social outlets or feedback from anyone as they are quite confident in their own skin. They look at the big picture and try to sort out ’cause and effect’ as well as the impact on the future.

Often, two personality types (introvert and extravert for example) don’t see eye to eye. Not unusual, as each one has the potential to bury another, i.e.: water can put out fire, fire can melt metal, metal can chop wood, etc.

There is one group however, that is well-grounded, nurturing, organized and even tempered; the not-so-insignificant earth-people. Earth people are the facilitators of the cycle. They do what they can to support a cause, they are empathetic, and can listen to reasonable arguments on both sides.

They make fabulous human resource persons, health care workers, executive assistants and great moms. Without earth people to balance the cycle in a group, there could be a division of the ranks.

When looking for a business partner or building your team, you need to look for skills and attributes from a number of elements.

Best friends from college don’t necessarily make the best roommates or even business partners. Nor does it make sense to hire a sales team without thinking of the big picture; who will do the accounting and customer service?

Keep these traits in mind when hiring for your team:

  • Wood-people make great sales persons. They are energetic, have great ideas and make great connections. They can be flexible dealing with people and negotiations.
  • Fire-people make great spoke-persons for a cause. They are passionate, have drive, and can attract attention. Fire-people can be exhausting to work with, so keep them busy.
  • Earth-people are a calming voice in a stressful environment. They are empathetic to others, take care of small details and treat others in a respectful way. They make great listeners and great arbitrators to settle differences with fairness and respect.
  • Metal-people can be the back bone of an organization. It takes self discipline to balance the accounts, sort out cash flow and keep devices and apps current and operational.
  • Water-people can be the most unstable. They often sound off, yet come up with great ideas on how to improve things or run things better. They thrive on cerebral puzzles and make great visionaries when in the right place. Forecasting the future growth of a company takes time and visualization; and, they don’t want to do the work themselves.

If you look around your work place, I’m sure you can identify some of the character traits listed above. You may realize that some of your ‘best people’ are already in their ‘best positions’; others perhaps not!

The reality is that we need all types of skills to excel in all types of tasks.

All these personality types can support each other in the cycle of elements.

We need all of these skills within the elements to form a well-balanced cycle. If you work within a large business, you may have the benefit of having several people in each of these areas and can focus on their strengths.

As an entrepreneur, you may not have the luxury of hiring a team to do all the tedious tasks that you don’t like to do. But, these tasks need to be done. A well rounded person will have skills in all of these traits, some stronger than others. 

If you have any weaknesses in any of these areas: hire some help, take a course or delegate these tasks to a professional.

Having a well-balanced team is the key to a well-balanced business!

All the best,
Kathryn

About the Author, Kathryn Wilking

Kathryn Wilking

Kathryn of Kathryn Wilking Designs is a Professional Member of the International Feng Shui Guild, and Author, Teacher and Feng Shui Consultant and is available for innovative talks for workshops and Lunch 'n Learn programs.

Sign up to receive a FREE copy of her "Bucket or Chuck-it" PDF report as well as monthly tips on creating a healthy and happy environment at www.kathrynwilking.com