Minimizing the Cost of Turnover Starts with Good Hiring Practice
August 28th, 2013 by Mindy Flanigan
Employees are an investment. At some companies, they are the most expensive investment. Would it surprise you to know that the cost of turnover for a $40,000 a year position (when factoring in hard and soft costs such as lost productivity) could cost you as much as $40,000 to $60,000?
Employees who are in their first year of employment are the most expensive to turnover, because the process of making a hiring decision costs time and money. Many turnover cost calculators are available for use and will ask you to factor in expenses such as cost of time for the interview, cost of overtime or temporary help and even the cost of a drop in morale if the departing employee was influential or well liked.
Let’s look at a simple example of an employee who only worked for 30 days at a small manufacturing firm and was hired as a floor manager at $60,000 per year.
Multiple Interviews (rate of pay for those involved x time) $600
Cost of Company Vehicle $700
One Week of Off-site Training $1,400
One month of Salary $5,000
TOTAL COSTS $8,500
In the above scenario, the employee just didn’t show up on day 31. No call, no notice. So do you have the option to withhold pay to recover some of this money? NO! In researching this situation further, it became clear that some good hiring practices could have saved this organization the time, aggravation and cost of turnover. At Infiniti HR, we don’t want this happen to you and so we have provided a couple of key steps to avoid a situation like this from arising.
Step One – Understand the Position
If you are tasked with filling an open position, first obtain permission to hire, determine your salary budget and establish a timeline. The best way to understand the position and determine the necessary skills, qualification and abilities is through a job description. If you don’t have one, draft one. If you need help with content, ask someone who has done the job in the past or ask the person who supervises the position. When outlining skills, qualification and abilities, gather information specific to the essential duties of the job such as computer skills, education level, need for heavy lifting, driving requirements, etc.
Step Two – Interviewing
You’ll start with an application and resume review. Aside from making sure that the applicant’s skill sets matches the position requirements, here are some key areas to focus on: grammar and spelling, gaps in employment (obtain an explanation) and relevant experience (a good resume will quantify successes). Once you have narrowed down your candidate pool, use phone screens to gather information on some very basic areas to determine if it is worthwhile to bring them into the office for an interview. Prepare ahead of time and make sure you don’t ask anything discriminatory such as marital status, race, national origin, religion age or disability. Effective in-person interviews start with preparing open ended, behavior-based questions typically formulated based off content in the job description. For instance, when hiring a customer service manager, you may want to ask the candidate to provide in detail an example of a situation where they were called on to resolve the complaints of an angry customer. The interviewer should be doing no more than 30% of the talking, particularly during a first interview. Put your best listening ears on and tune in for red flags.
Step Three – Selection
How do you make the right hiring decision? Many times one candidate shines far above the others and the decision is easy. Sometimes you may have to choose between two candidates. In that case, do second or even third interviews to gather more information. Before you make that official offer of employment, be as thorough as possible, starting with reference and background checks if necessary. Reference checks can often be done in-house and can be as simple as asking the applicant to sign a release of liability that can be sent to the former employer so more detailed information can be divulged. Background checks are typically outsourced to a third party and can often be worth the cost. Once a decision is reached, make your offer of employment both verbally and written. Verbal sends the message that you are excited for the new hire to start and opens dialogue in terms of benefit questions, salary negotiations and scheduling. Written offers of employment send a professional message, commence the expectation-setting process and should outline position status, compensation, benefits salary terms and any information related to first day of work and paperwork requirements. Finally, remember the importance of a good orientation and training. You only get one chance to make a good impression. Let the first day lay the groundwork for a successful employment relationship.
Following these good hiring practices will ensure you’re being diligent in hiring the right person for your company. It will also minimize the likelihood of any associated turnover costs.
Click the link to view our recent blog: Cutting Unemployment Claim Costs for Small Businesses or check back next week for more on human resources, payroll, insurance and benefits.