by: Stacey Bell, SPHR, Human Resources Specialist.
Employee turnover refers to the percentage of workers who leave the company and are replaced buy new employees. This is one of the most common reason why companies need to recruit a new staff member. You may have heard that recruiting a new employee and turnover are expensive, but are you familiar with the direct and indirect costs of turnover?
Direct costs are those that can be specifically attributed to the cost of getting your new employee in the door and ready to start their first day. Seven examples of direct costs of recruiting are:
- The cost of posting a position online – This can range from as low as $50 to as high as $500 for a posting.
- Reference and background check fees – A service is most commonly utilized by dental practices, but background check services can also be performed in house.
- Skills testing and personality testing fees –We recommend opting for skills testing as an alternative to a working interview. Skills testing provides valuable information that prevents unqualified hires.
- Preemployment drug screening – Preemployment drug testing is optional. If you are utilizing drug tests as a tool to make a hiring decision, make sure to include this in your direct costs.
- Employer taxes – Each new hire comes with the need to repay Federal and State Unemployment Taxes.
- Cost of training programs and materials – Does your HIPAA or OSHA vendor charge per training?
- Temporary Placement fees – Consider the cost of temp placement fees to fill in while you look for a new staff member and any difference between the new staff members hourly rate compared to the temp’s hourly rate.
Indirect costs are more difficult to assess a specific dollar amount, but are large contributors to the recruiting budget. Some examples of indirect costs related to recruiting are:
- Low Motivation – Low motivation accounts for one of the highest indirect costs related to turn over but it’s the most difficult to quantify. Did a former employee spend more time procrastinating about work than actually completing it prior to departing? Were they constantly on the internet potentially looking for new employment opportunities? Did coworker morale suffer due to another employee’s departure?
- Salaries – The salaries of those involved in the interview process contribute significantly to the recruiting budget. Sometimes this is just one person, or sometimes this can be several people in the office. In either case, employees are taking time away from their regular duties to complete recruiting tasks so it should be included in the cost of recruiting. Here are some time-consuming roles to consider with respect to recruiting:
- The Poster – The poster logs in and manages the post. This includes writing the job description, paying the posting fees, ensuring the posting is active.
- The Resume Reader – The resume reader sorts through the resumes to determine which candidates to prescreen. Each job posting attracts many unqualified applicants that need to be sorted through. Even if a resume reader only spends one minute or less per resume, this can add up with the average posting attracting hundreds of applicants!
- The Prescreener – Prescreening candidates involves a significant amount of phone tag. The prescreener is taking time away from other tasks to complete prescreens; his or her salary for prep time, phone tag and actual prescreen time should be counted towards the cost of recruiting.
- The Interview Scheduler – The interview scheduler juggles the schedules of the interviewer and the interviewee to find a time that works for everyone. Oftentimes, they call to confirm interviews and send directions as well.
- The Interviewer – The interviewer’s recruiting tasks include time spent prepping for an interview, interviewing and time spent documenting following an interview. Don’t forget to add in the cost of second round interviews here if applicable!
- The Decision Makers – After interviews are held, those involved in the decision making process often meet to discuss the pros and cons of the candidates. Considering the time to review notes and discuss the candidates might sound small but consider that the decision makers are often the leaders of a dental practice—so salaries are higher too!
- Productivity – Does productivity suffer when your office manager is tied up with the interview as opposed to running the flow in the front? What if someone is on the phone with a prescreen and a patient call is missed? Does interviewing take time away from seeing patients? A new employee is always less productive than a more tenured employee because trained. These are all things to consider when evaluating the costs of recruiting.
We estimate the cost of replacing a $15 per hour position to range from $2200 to $5400+!
We’ve all heard that turnover is very costly, but on the surface, the cost of turnover might not seem all that expensive when you’re experiencing a vacancy. There are many direct and indirect costs associated with turnover and the need to recruit new staff members. Let’s briefly examine the cost of turnover for staff member that makes a salary of about $15/hr:
- Low Morale Prior to Departing: We’ve all known someone that was looking for a new position and putting in the minimum effort until they find something new. Let’s assume that your departing employee slacked between 30 min to 2 hours per day and their job search took three weeks. This costs between $100 to over $450.
- Advertising the position: Depending on the combination of services that you use to advertise your vacant position, this can cost anywhere from $50 to over $500.
- Salary of interviewers and pre-screener: How much are you paying your office manager to interview, prescreen the candidates? The average prescreen takes 30 minutes and about 1/5th of those prescreens are qualified for interviews. An interview takes an hour, and prep/scheduling/documentation takes at minimum one hour. If you intend to interview three qualified candidates for the opening, assume this will take an absolute minimum of 15 active hours to complete. This can cost your practice anywhere from $200 to $1000+ in salary.
- Reference and background check service fees: Reference checking and background checking can be done yourself or via a service. Depending on the detail level, background checks can range from $25 to over $100.
- Federal and State Unemployment Taxes: In 2017, the FUTA tax rate is 6% on the first $7000 dollars you pay each employee per year. State Unemployment Taxes vary greatly and different credits/ calculations apply. Let’s assume that FUTA and SUTA taxes would be between $400-1100 depending on your state, the tax rate, and the time of year the new staff member was hired.
- Temporary placement fees while looking for your new team member: Temps are paid higher by the nature of their work and the temp agency also wants their cut. To have a temp cover for two weeks, assume you’ll pay between $900-1100 in wage differences and temp fees.
- Productivity: Does productivity suffer when your manager is away from the front to interview? If the doctor needs to interview a candidate, how much chair time is lost? Is the new staff member slower than the old staff member just because they’re in a new place? This area is the most difficult to quantify, we will conservatively estimate this cost to range from $150-400.
- Training Costs: HIPAA and OSHA alone take up several hours of training time. This means paying the employee, the training and providing training materials. Additionally, add in the salary costs of showing a new employee where dental supplies are kept, how to work machines and practice management software, going over new hire paperwork, and providing orientation. Even if these things are done more informally, they take time. This cost is estimated between $200-400.
- Skills and personality testing service fees: Though these are optional, they are helpful when determining if you’re making the right hiring decision. Since working interviews are strongly discouraged, skills testing and finding the right personality match is encouraged! We estimate this cost between $70-250 if utilized.
- Pre-employment drug screening: Again, this is another optional item. If utilized, pre-employment drug screenings usually cost between $35-75.
This means that for a $15 per hour position, the turnover costs are conservatively estimated between $2200 – $5400!
These numbers assume that everything with the candidate search goes smoothly, most interviews show up, one of the three in-person-interviews is a good fit for the position, the loss of productivity is not rampant, and the doctors/practice owners are not highly involved in the interview process.
Blogs, analysts and consultants claim that turnover is very costly for Dental Practices. But, do you know all the hidden costs of turn over? Below we consider common costs associated with replacing an employee that earns about 15 per hour. Many of these calculations are based on an employee’s salary. Consider this next time a highly paid employee turns in notice! Getting the position filled with the best person for the job in a timely fashion is key to preventing further turnover costs in the future. Let’s take a look at the hidden costs of turnover:
- Slacking on the job: It is common for less than motivated employees to slack while seeking new position. Sometimes they even slack by looking for that new position while on the clock! Employees commonly slack anywhere between 30 minutes to 2+ hours per day. Assuming that it took three weeks for your former employee to find new position, you would’ve paid them between $100 – $450+ in wages.
- Job Posting: There are many different advertising services with which to post a vacant position. The goal is to advertise and several different mediums to attract a diverse workforce. Services to advertise a vacant position can cost anywhere from $50 to over $500.
- Salaries of recruiting team (office manager and helpers): It’s easy to forget about the salaries of those involved in the hiring process. Salaries paid to those employees that review resumes, prescreen candidates, schedule interviews, prep for interviews, and hold interviews need to be accounted for when considering the high cost of turnover. Prescreening five candidates will often result in one candidate qualified to interview. Interviews typically take at least one hour; however, hidden items like taking the time to prepare, schedule, and document quickly add an hour or more. This can be estimated at anywhere from $200 to $1000+ in salaries (depending on how involved the doctors/ practice owners are in the interview process)
- Background and reference checks: practice is commonly use a background check service to complete the background and reference checks. These can range from $25 to over $100 depending on the complexity and needed detail.
- FUTA and SUTA (or, unemployment taxes): Annually, employers must pay federal and state unemployment taxes. If a new employee is hired, employers must pay taxes on that employees wages—no matter if they were hiring to replace a former employee whose taxes their already paid for the year. These are highly variable depending on your state, your tax rate within that state, the time of year the new employee starts, and the rate at which the employee is paid. For purposes, we assume these taxes to be between $400 – $1100. Looking at your first-quarter tax reports should give you a better idea about your practices tax rates.
- Temporary staff and agency fees: Temp agency attract employees by paying higher rate in exchange for a temp’s willingness to work variable schedule and travel to different offices on short notice. Additionally, agencies have fees for providing a temp to your practice. When accounting for the difference in wages and for agency placement fees, the cost to have a temp cover two weeks of shifts is between $900-$1100.
- Productivity: When your office manager is away in an interview, does productivity suffer? This can be due to questions for a manager, staff clowning around, other front desk members not as experienced with running the flow, etc. If the doctor needs to interview a candidate, how much chair time is lost? New staff members are slower, how much does this cost in production and salaries? Quantifying this section is very difficult, we conservatively estimate this cost at $150 to $400—and very potentially well beyond that figure.
- Employee Training and Development: HIPAA and OSHA are required trainings take up several hours of the first weeks of employment. Things like training materials, paying a trainer, and paying the trainee factor into this cost. Additionally, more informal training like explaining where office and all supplies are housed, how to use practice management software, how to work machines used in the office, completing new hire paperwork and orientation filter into the cost of training and development as well. Expect to pay between $200-400 for training related expenses.
- Skills and personality testings: We strongly discourage for interviews in favor of skills and personality testing instead. Vendors range greatly with respect to skills and personality tests. We estimate between $70-250+.
- Pre-employment drug screening: Another optional but commonly used candidate assessment tool is a pre-employment drug screening. If utilized, pre-employment drug screenings do require some administrative tasks, and usually cost between $35-75.
Without the above example turnover costs are very conservatively estimated between $2200 to $5400 first position that pays $15 per hour. Considering that sometimes the interview and recruiting process does not fully go to plan, these numbers can creep up higher and are often hidden costs.
Things that add to hidden costs are:
- Interview no-shows happen. Do you reserve chair time to interview a candidate? Did your office manager spend time prepping for the interview?
- Candidates decline the position. You went through the process of selecting a candidate. Someone in your practice spent hours prescreening, interviewing, background checking—only to have the candidate get a very slightly higher offer closer to home.
- Many unqualified candidates, no qualified ones. Your pre-screener keeps spending time prescreening the candidate only to find out they do not meet the minimum qualifications. Now you’ve had a temp for seven days, and no qualified candidates are applying!
- Doctors spending the time to interview first round candidates. This is common in small practices. The loss of productivity adds up quickly. Making a great hiring decision is important and doctors should be involved in those decisions, but often times, the doctors time is best suited to sign off on a final decision prior to hire.
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