Depending upon the source, the cost to hire a new employee is one to three times the base salary cost. Turnover as noted in this Sept. 8 column was averaging 50 percent for hourly workers over four months and 50 percent for upper level executives over 18 months before the most recent recession.
Add the impact of disengaged workers — 75 percent of all employees — along with other research that suggests 80 percent of all U.S. employees are seeking new jobs and the numbers are beyond staggering.
So what does this mean for a small business with 20 employees? The simple answer is lost profitability. Unfortunately, small business owners fail to invest the time to crunch the numbers to understand this dramatic and negative impact to profits.
Maybe it is time to do some general number crunching to better understand the financial impact of ignoring proper onboarding. If we use the 2012 U.S. Census Bureau statistics, the average salary is $37,360 for Northwest Indiana. Other sites that use published jobs advertisements suggest the average income is $46,000. We’ll use a $40,000 salary to begin our number crunching experience.
For a firm with 20 employees this equals a total of $800,000 for annual salaries without any additional profit dollars such as Social Security, other benefits, training, etc. Now we can begin to add the dollars that are not generating productivity and ultimately profitability.
• $100,000 for 25 percent of employees working less than four hours of work for eight hours of pay (actively disengaged)
• $80,000 for the 50 percent of employees working less than eight hours of work for eight hours of pay (Estimating loss of 20 percent or two hours per day in productivity)
• $80,000 for the 13 percent (two employees) industry average turnover to replace lost employees with new hires
Conservatively, $160,000 right off the top is going down the productivity drain. Much of that $160,000 is directly tied to profitability. Now if the economy gets better, add another eight employees (potential loss of $320,000) who will be quitting your firm this year and worse yet they will probably be your better workers. The actively disengaged employee rarely leaves on his or her own.
By establishing a proven onboarding process, you can unite your recruiting, your hiring, your performance reviews and your training together into one cohesive process. Onboarding does not operate in isolation, but rather compliments other employee activities. Possibly the worst action a small business could take beyond not having an onboarding process is to have one that is not connected to other workforce operations.
By Leanne Hoagland-Smith