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Employee Turnover is Money Down The Drain

For some mysterious reason, employee turnover is accepted as an unavoidable event and expense by most business owners and managers. I don’t get it.

Employee Turnover is money down the drainImagine these same business owners accepted as normal that one out of every two customers who purchased a product or service would leave your business without paying. Or that for every product you delivered one would fail. Or that for every two contracts you signed, one vendor would fail to fulfill his end of the deal. No one in business who expected to prosper would ever tolerate this level of performance.

But when it comes to hiring employees, many businesses, especially those in retail and hospitality, accept employee turnover rates as high as 200 percent. But even for businesses that feel that 1 out of every 3 or 4 employees won’t work out, the costs are enough to break their bank.

An ultra-conservative estimate of the cost of turnover for hourly employees is 25 percent of their annual salary. A search for studies about costs associated with hiring and employee turnover places the actual expense closer to 50 percent for hourly employees—and many times higher for management, professional, sales, and other key positions—when you consider lost opportunity costs, lost productivity and even theft, absenteeism and other counterproductive and disruptive behaviors.

That means that a small business paying an employee an hourly wage as low as $7.25 per hour incurs the minimum cost of $3,625.00 (25% x $14,500.00) every time an employee leaves voluntarily (quits) or involuntarily (fired). The costs just mount as the wages go up:

$10.00 per hour = $5,000.00 per employee

$15.00 per hour = $7,500.00 per employee

$20.00 per hour = $10,000.00 per employee

What’s a business owner to do?

  1. Stop relying on the interview and application as the sole means of employee screening.  It has been well documented that the traditional interview is only 52 percent reliable. (That means 1 out of every 2 new hires won’t work out!) And nearly half of all resumes and applications are filled with inaccuracies, too.
  2. Utilize pre-employment testing. Technology has driven the cost of employee screening down – way down.  For a small fraction of the cost of hiring the wrong person, employers can test for skills as basic as math and reading to the ability to run the company.
  3. Do background checks. Small businesses can’t afford to hire an employee who steals or brings other personal baggage that could permanently damage the business’s reputation. At minimum, perform a criminal background check, confirm past and current residences, and if required for the job, confirm education and licensing.

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