The True Cost of an Employee - Renascent Consulting

The True Cost of an Employee

At first glance it appears the cost of your employee is their wage or salary, however the reality is that there are other areas that make up an additional 30% of costs your small business will pay per employee.  

After investing so much to start and run a company, the thought of investing in a new employee can be daunting.  The reality is that an employee costs more than their base pay, and turnover is even more problematic for any business.  According to CNN Money a $14 per hour worker costs an aircraft cleaning company $19.63.  The additional costs stem from taxes, uniforms, benefits, health insurance, office space, equipment, and training.  Your business is no different; your hourly and salaried employees wages are only 70% of the true cost associated with them.

In the graph below you can see the actual cost breakdown of each employee according to the US Bureau of Labor Statistics.

Additionally, when that employee that you have invested time and money on decides to leave the organization, the company accrues costs of 30 – 50% of the employee’s annual salary for line workers and up to 400% for specialized workers.  The Society for Human Resource Management, SHRM, estimates that an $8 hour employee costs $3,500 to replace. Consider just a few of these replacement costs:

  • Time to interview/review applicants
  • Interview expenses for the candidates
  • Increased unemployment insurance costs
  • Lost productivity
  • Separation costs: Time for exit interviews
  • Overtime from other employees
  • Possible travel or relocation costs for the candidates
  • Additional bookkeeping – Payroll, 401k, etc.
  • Training the new hire
  • Intellectual property lost

What does all of this mean for your company?  One of the highest priced assets you have is human capital.  Take the time to actively recruit high levels of talent and then establish a company culture that promotes learning and growth.  When you are complacent in the way your recruit, and hire, you end up with complacent employees.

If you want employees who stay with your organization for a long-time, enjoy their work, and are engaged, taken an honest look at a few questions.  What is your hiring process?  During an interview, do you look for people who have both the technical skills you need and would be a cultural fit (in other words, your other employees will enjoy working with them)?  How do you on-board employees?  How do you develop your employees?  Do you have an environment in which people genuinely enjoy and take pride in their job?

When you start becoming loyal to your employees by offering more than a paycheck and hiring with purpose, your retention will increase and your company culture will foster increased job satisfaction and employee engagement.

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