Any Idea What Your Employee Costs Are?

employee costs

Every small business I have met to date are extremely cost conscious, and rightly so, as their existence depends on it. Yet many are aware of one of their greatest costs – their employees. I am not just talking about weekly payroll costs.

Let me share an example. What is the current turnover of your business as a percentage of your total head count? As a guide, a healthy turnover is about 10-20%, depending on your industry. Why does this matter? It matters because it is very expensive and time consuming to replace employee turnover. It also means you are not focused where you should be. Not only that, there will be a dip in productivity as a result while the role is vacant, which means other team members will need to pick up the slack, if long term this extra work can have a detrimental impact on your team’s morale.

How would tracking this help? Well, for a start, you might see the following:
• Cost management opportunities
• Roles that are particularly difficult to retain and opportunities to address this
• Management issues
• Whether you are struggling to identify what you really need
• Ways to improve your company’s attractiveness to the employment market – why would someone want to work for you?

What are some other costs to measure?

Headcount – Measure the number of full-time and part-time permanent employees, casuals, temps and contractors.

Average salary/day rate – Tally all the salaries paid to permanent employees and divide the total by the number of employees.

Attrition- This accounts for employees leaving the organisation, but this can also be split into managed attrition (otherwise known as being pushed) or unmanaged attrition (legitimate resignations).

Vacancy costs – the cost to your business of having a role vacant for a certain amount of time.

Recruitment costs – cost to hire, in particular recruitment agency fees, advertising charges and the time you invest in the team.

Annual leave – measures the annual leave liability that your business is carrying.

Absenteeism – understanding what amount of personal leave your employees are taking.

Engagement – measures the discretionary effort employees are willing to give a business is often talked about in terms of motivation levels of employees.

Loss of utilisation – Means the level to which the productive capacity of a business is being used in the generation of the goods and services.

Productivity measure – Productivity is a measure the efficiency of production. It is an economic measure of output per unit of input.

Understanding these numbers and how they impact your business will help you make more effective business decisions and tweak your position, as required.