For many businesses, busy-ness means more customers and hiring new staff, which theoretically, should translate into more profit. But sadly, this doesn’t always occur – in fact – quite often, the cost of hiring a new employee can outweigh the benefits. But the work still needs to be done, right? Consider hiring a consultant – usually, you can engage someone with more experience and skills, greater flexibility and less statutory regulations. Just think – no superannuation, no sick leave, no annual leave. Just the work – done. Sound good? Our case study below explains the ins-and-outs.
It’s only a few weeks until Christmas and for many, business is leading into a peak period. To some, this may sound like an excellent reason to hire some additional help. But just what are the true costs of hiring an employee and are you prepared to foot the bill? Here’s a working example to illustrate…. Meet Arnold.
General Manager of a catering business, ‘Arnold’ knows from experience that this time of year is exceptionally busy. With many people ‘beating the rush,’ workplace celebrations can start early and festivities can effectively kick on into late January, which means he needs additional resources – and he needs them now. Deciding to hire a full time operations manager and a catering manager, Arnold assigns a salary of $50,000 per annum to each role and begins his search for the right recruits.
Let’s skip forward to February – the peak period has come to an end and the owners of the business are reviewing their accounts. During the ‘busy’ period, revenue went up by 30% and the business attracted 15% in new business – a resounding success. Strangely, the bottom line profit appears to have decreased on last year by 37%. How is this possible? Surely it is an accounting error? The owners’ look at Arnold for answers, whom true to form, is unable to give any.
Referred to Start Grow Run for advice and insight, the owners of the business are shocked to discover that Arnold’s recent ‘hires’ had actually cost them an additional $14,800 in 3 months. Arnold had failed to take into account the real cost implications of hiring an employee!
A surprise to many (including Arnold), employees actually cost 25%-40% above their wages/salary amount. On top of the $25/hour you may intend to pay, additional costs such as superannuation, sick leave, annual leave, workers compensation, payroll tax and the cost of recruiting, must be factored in. Which, on an annual salary of $50,000 adds an estimated $15,000. This cost doesn’t include the costs of employing someone, such as ongoing training, professional development, office space, stationary, computers, office furniture, staff amenities etc.
Further, studies show that in the first month of employment, new employees are functioning at about 25% productivity, which means that the cost of lost productivity is 75% of the employee’s salary. The level goes up to 50% productivity for weeks 5 through 12, with corresponding cost of 50% of employee salary. Weeks 13 -20 usually bring the employee up to 75% productivity rate, with the cost being 25% of employee salary. Around the five-month mark, companies can expect a new hire to reach full productivity.
Hiring a new employee isn’t a decision that should be taken lightly, as it doesn’t fall lightly on the company budget. But now that you have a better understanding of what employees cost your business, would you consider a consultant? What measures will you put in place to reduce turnover and manage non-performing employees to get a better return on investment?
Get in touch with Start Grow Run today – make a change your business will love you back for.
