Employee turnover: Plan to fend off this profit killer

Baby boomers saturated the workforce in the 1970s, and they are now exiting the workforce at the same pace. With more and more couples choosing to wait to have children and having smaller families than in times past, the number of people entering the workforce is much less than those leaving.

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Start planning now. Employee shortages will be a problem for veterinary practices. Expect tough competition for suitable employees in a tight labor market. Design practice systems that keep new potential hires in the pipeline and mitigate the loss of experienced employees.

This article addresses two aspects of the predicted labor shortages of the next decade: the profit-killing cost of employee turnover and factors that can give your practice an advantage in attracting and keeping employees.

We believe a key practice focus should be on employee satisfaction. Successful practices care about employees and seek to reduce turnover. Employee satisfaction is the No. 1 reason people remain loyal to their employers and their jobs. Employee dissatisfaction is also the main reason many people leave their jobs.

Employee turnover is one of the employer's greatest liabilities. One statistic shows 33 percent of employees are "high risk" meaning they are not committed to their present employer and plan on leaving within the next two years.

Thirty-nine percent of the same pool surveyed felt they were trapped. These people are not committed to their employers, but say they plan on staying in their current positions for at least the next two years. In total, that means that 72 percent of people polled are not committed to their employers and plan on changing jobs in the future (Harvard Business Essentials 59-60).

The monetary cost of employee turnover can be great. Employee turnover costs can be segregated as follows: lost productivity costs, administrative costs and recruitment costs.

As an example, let's use a technician who worked 40 hours a week, and who received $14 an hour plus employer-paid health insurance at $150 a month. Assume the technician position is vacant for one month. The technician's salary over four weeks is $14 x 40 x 4 = $2,240, times 50 percent equals $1,120 of lost productivity. Add to that his or her benefit of $150, and the practice's total potential loss from productivity alone is $1,270.

The next step calculates the costs of conducting new technician interviews, administrative tasks of stopping payroll, COBRA notification and enrollments, and management time for assuring work duties are covered by other employees. Using the same example, let's assume the manager of this clinic makes $16 an hour and spends 20 hours terminating the employee and all associated paperwork and interviews. The administrative cost of the technician's departure is then $320. The employer payroll tax effect adds another $30 or so, for a total of $350.

To continue the calculation, we'll move on to recruitment costs, which include the costs to plan a help-wanted ad, the manager's time to fill out new-hire forms, and new employee training time. While training varies from practice to practice, assume six full weeks as a conservative estimate.

So now you have hired a new technician at $14 an hour, have spent six weeks training them, ($14 x 40 x 6 = $3,200), add payroll tax effect of $300, totaling $3,600 cost to the practice. We also need to include the manager's time with the new hire. For simplicity's sake, we will use 20 hours again. Don't forget, to add the advertising cost. Let's use a conservative estimate to place an ad at $50.

Based on the forgoing assumptions, the total cost of replacing a departed veterinary technician is conservatively tallied as follows:

• Lost productivity: $1,270

• Termination administrative costs: $350

• New hire training: 3,500

• New-hire administrative costs: $350

• Advertisement: $50

• Total basic costs to replace a technician: $5,520

The above computation does not consider the sunken cost of money expended on training and continuing education of the employee who resigned. Also consider whether the employee can collect unemployment compensation or not. If she or he can, what is the cost to the practice? The state will assess the employer directly for unemployment claims, and the claim will most certainly impact the employer's rating adversely. Future years of unemployment tax payments will increase on the applicable wage base across all employees.

The cost of employee morale

None of the calculations thus far assess the price paid for the negative impact on employee morale due to a co-worker's departure. Anytime a worker resigns or is terminated, other employees must fill the vacancy until someone else is hired. Extended duties and hours have the potential to cause employee stress and resentment.

Whether right or wrong, co-workers often have the perspective that they are the ones most adversely affected when another employee quits. Remaining employees typically work more hours, fill positions that they would not normally work, and then must assist in training and integrating a new employee into the practice family. All of these changes in worker duties and relationships disrupt the practice's balance and harmony.

The previous provides a very conservative figure of employee turnover cost. Many experts claim a down-and-dirty estimate of employee turnover cost can be computed by multiplying the employee's yearly pay times 1.5. A $30,000 annually salaried technician will then cost the practice $45,000 upon resignation.

While this figure appears high, the first computation is quite conservative. The actual costs of turnover likely lies somewhere in between, at about $15,000 overall.

The Bureau of Labor Statistics reports the private sector has suffered a 3.25 percent monthly average turnover rate for the last 18 months. This means, for every 100 employees, 3.25 will leave their current positions each month.

With today's job market opening up, one statistic states there are two available job positions for every new potential employee.

Sue A. Schmidt, EA, is director of Tax & Accounting, Practice Management Consultant with Marsha L. Heinke CPA in Grafton, Ohio.