Is Your Business Paying Enough?

So, is your business paying enough? Money isn’t the only or most common reason for employee turnover, but when the local job market averages higher wages than an individual organization’s pay rate—it becomes significant. Employees may leave for lack of appreciation or better benefits. Still, when pay is significantly lower, it’s like someone once told me, “Money may not be the main reason someone quits a job, but if they’re not making enough money to survive, then it’s like air, we don’t think about air, but ask a drowning man how important air is.”

Is Your Business Paying Enough?

Show Me the Money 

A friend recently lamented that they had trouble hiring for entry-level positions. I told them it shouldn’t be a surprise because there are currently more positions available than there are candidates. And their company started entry-level hires at $8:00 an hour when a local fast food franchise had a sign in the window “Hiring inexperienced workers starting at $12.00 an hour.”

How Much Does it Cost? 

Do the math. Studies vary as to the cost of employee turnover. I’ve read studies with the cost of turnover ranging from 16% to 150% of annual salary. An employee earning $8.00 an hour without overtime earns $16,640 annually. Sixteen percent or $2,662 can be lost directly due to turnover, but that’s only the direct costs such as interviewing, hiring, onboarding, benefits, and training.

Indirect costs such as lost production caused by inexperience or short-staffing, lost knowledge, rookie mistakes, and loss of customer opportunities due to not meeting expectations are difficult to assign a cost to. However, they may be more significant than the direct costs. If these indirect costs impacted the bottom line only one-half as much as the direct costs, then the total cost of losing one $ 8.00-an-hour employee would be $4,000. Likewise, wages impact a company’s reputation, employee morale, production, recruiting and how customers view an organization.

Additional Insights 

“What do all these costs add up to? Well, how much? Estimates run as high as 150 percent of annual salary. Much less for lower-level positions, but still significant enough to make retention a high priority for your business.” Inc. Magazine–Why Employee Turnover is so costly

It Adds Up Quickly

“Employee Benefits News reported that turnover can cost employers 33 percent of an employee’s annual salary. The culprit? The hiring of a replacement. To put a dollar amount on it, if the employee earned a median salary of $45,000 a year, this would cost the company $15,000 per person — on top of the annual $45,000. Considering that a survey from Willis Tower Watson found that one in three hires will leave a company within two years, you see how quickly this can add up.” — Forbes — The Cost Of Turnover Can Kill Your Business And Make Things Less Fun

The True Cost of Employee Turnover 

“The cost of replacing these workers varies depending upon their role within the organization. At the very lowest end, SHRM estimates the cost to replace a minimum wage hourly worker averages $1,500. Most other HR consulting firms place the cost of replacing an hourly employee at much higher, most in the range of $3,500 to $10,000. However, this is just the cost of lost productivity, overtime, recruiting, background checks, training, and other measurable costs.” — Midland Technical College — Measuring the Real Cost of Employee Turnover

In Conclusion, Is Your Business Paying Enough?

Raising pay to meet market standards isn’t only about employees or what they gain from it. It’s a cost savings business initiative that can positively impact the bottom line.

How Can I Help You?

I like to help people and organizations, but I have three criteria I consider before taking an assignment – I believe in what the organization stands for, I know I can help, and it looks like fun. If you have any questions, Contact Me. 

Does your business have a management training plan? Businesses and universities use my book, The New Manager’s Workbook, a crash course in effective management, as the basis for their leadership development program. I’m also available to conduct training.