The Four Categories of Employee Costs

If your business only hires a new employee once or twice a year, the list of costs associated with hiring, on-boarding, training and retaining good people might seem incidental. However, if you, like one of my clients, who employs hundreds of in-home caregivers, you are in a constant hiring mode. Then all these costly details add up quickly and you will need to have strong processes in place to identify and control them.

1) Hiring costs:

The many expenses associated with a new employee start well before he or she does and should be recorded in a dedicated recruitment expense account rather than into any of several possible miscellaneous expense categories. Hard hiring costs are pretty self-evident but there are also plenty of soft administrative costs mixed into the process that you may want to capture as well. For example, you should assign the percentage of time spent by employees recruiting as hiring costs. You can estimate whole dollar amounts to allocate per hire, but you can’t control what you don’t measure, so capture these costs.

    1. Job specific advertising, on-line, in print or other
    2. Time reviewing and selecting the best resumes and applications
    3. Phone time spent screening those applicants
    4. Interviewing: In groups, first and second level individual interviews and perhaps a final interview by one of your executives.
    5. Aptitude, knowledge & skills testing including time and materials ($150-$500ea)
    6. Drug screening ($15-$25ea)
    7. Background checks ($40 – $70 ea. depending on how many jurisdictions you check)
    8. DMV check is a must for anyone driving on company business.
    9. Professional agency fees (25-30% of first year salary is common)

And these all take place before the new employee is officially hired. Many of these are unavoidable, but being aware of them and minimize them when and where you can is the goal.

2) On-boarding: 

This is the time taken to familiarize the new hire with the company’s physical and cultural layout. Where are the departments and who are the supervisors that they may interact with. Who are their co-workers? Where do they park and when and where do they take breaks and lunch? Also, keep in mind the costs of:

  1. General orientation meetings
  2. W-4 and other HR forms
  3. Employee handbooks
  4. Benefits handbooks
  5. Employee uniforms
  6. Security badges
  7. Parking permits

3) Training Costs:

It takes time and dedication of resources to advance an employee up the ladder from “newbie” ” to fully productive team member. Your goal is to move them quickly from cost center to the tipping point where they are fully productive. In order to accomplish this there are certain essential general and/ or job specific types of training that might be undertaken. Regardless of subject matter or format, there will be real costs associated with training. Examples include:

  1. Safety rules and regulations (Hazmat, etc.)
  2. Govt. Compliance issues
  3. IT systems orientation
  4. Sexual harassment training
  5. Indirect costs of equipment, facilities and supplies
  6.  Individual counseling, coaching, mentoring

Cross training is a form of job enrichment, it leads to increased employee empowerment and security and can help to reduce very expensive employee turnover costs. It can thus increase productivity, morale and more. It can help fill voids created by illnesses and vacations and demonstrates to staff that the company cares about employees’ career growth. In short, effective and efficient cross training programs will serve you well.

4) Retaining Costs:

“Cash money isn’t the only way workers are compensated, of course – health insurance, retirement-account contributions, education and transit subsidies and other benefits all can be part of the package. But wages and salaries are the biggest (about 70%, according to the Bureau of Labor Statistics) and most visible component of employee compensation”.  Drew Desilver, Pew Research Center

Not every business can afford to offer a complete universe of benefits.  However, those companies competing most effectively for talent are offering benefits like the ones listed below to attract today’s entitlement savvy candidates. Where do you stand with respect to the following:

  1. Major Medical Insurance
  2. Disability coverage
  3. Dental insurance
  4. Vision care
  5. Life insurance
  6. Tuition reimbursements
  7. Pension/Profit sharing plans
  8. 401k Plans
  9. Flexible spending accounts
  10. Free transportation to and from work (see Google and Facebook)
  11.  Free company cafeteria open 24/7 (again, Google, etc.)
  12.  Child care services

According to Eric Koester of My High Tech Start-Up, “estimates range from 1.5x to 3x salary for the ‘fully baked’ cost of an employee – the cost including things like benefits, taxes, equipment, training, rent, etc.” Hiring a new employee isn’t a decision that should be taken lightly, as it doesn’t fall lightly on the company budget. But without workers, there isn’t much work done. And that’s the bottom line for businesses; even though the investment may make the company accountant cringe, the potential in return on a good new hire continues to make the investment worthwhile. 

Before you decide to add benefits, remember they are all added on top of the more mundane, but required (California) basics of:

  1. Social security tax of 6.2% on the first $117,000 in calendar gross earnings.
  2. Medicare tax of 1.45% on all calendar gross earnings (no maximum earnings)
  3. 0.8% Federal unemployment tax (FUTA) on the first $7,000.00 in calendar gross earnings.
  4. For CA employers State Unemployment Tax (SUTA) of up to a maximum of 6.2% on the first $7,000.00 in calendar gross earnings (new employers start at 3.2% SUTA rate on the first $7,000.00 in calendar gross earnings.
    (2016 statistics thanks to Craig Koster, CPA)

In the current economy where jobs are being eliminated by automation in record numbers it is increasingly important that hiring decisions be made wisely and as infrequently as your retention rate allows. I hope this article has helped to give some clarity and focus to your hiring processes.

Robert Skidmore, President

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Business plan, Org chart, Enthusiasm………..check, check, check! Now set the foundation with Core Values

skidbiz man

Most organizations begin with a business plan and an organization chart and a lot of enthusiasm, but eventually they recognize the need for a number of additional policies and devices that define who they are and drive their progress.  One of the most fundamental, and the one we cover here, is your statement of Core Values.   It will be the first step in drawing up the necessary documents and plans that will help animate your ideas into company beliefs and actions. These are the communications to all associates and stakeholders explaining what your enterprise wants to accomplish, what it stands for and where you intend to direct it. These are virtues that you post on the office walls and in the company newsletter that help to create the culture and the language of success that you want all associates to embrace.

www.BusinessDictionary.com

Core Values definition: Principles that guide an organization’s internal  conduct as well as its relationship with the external world, its enduring purpose.

            OK, here we need to tap the brakes a little bit. Defining your company core values isn’t something you can (or should) bang out on a cocktail napkin. If yours is a small company then it’s core values may be an extension of your own personal beliefs that include your views on integrity, philanthropy, value creation and truth. If you are a non-profit organization serving the economically disadvantaged you may want to state diversity, respect and stewardship as your key identifiers. Either way some introspection will serve you well. Other tenets to consider may include: leadership, stretch, global, consistency, creativity and diligence.  Typically this list will include the five or six items you feel are most important, but expanding to eight or nine isn’t unheard of.

Kevin Daum wrote for INC. magazine: Most concede the power of core values in business.  Jim Collins made a great case in Built to Last.  But it’s difficult to accurately create or accept core values for your company if your own personal core values are unclear. Many claim to understand their own values, but I maintain you don’t really know them until you have:”

  • Articulated them clearly in writing.
  • Tested them through daily decision-making.

Remember that these could be under inspection every day in the issues of customer service, credit and collection and employee hiring and disputes just to name a few. So take some time and be willing to accept input from others in formulating the pillars of what your company stands for.

Robert Skidmore, President

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Creating a Strategic Team Vision

                    Three stone masons of the middle ages were hard at work when a visitor came along and asked them what they were doing. The first stone mason was toiling away, sweat beading his brow. “I am cutting this stone”, he grumbled. The second stone mason, though less distraught, responded with a deep sigh, “I’m building a parapet.” The third stone mason replied with a radiant face, “I am building a beautiful cathedral that will glorify God for centuries to come”.– Author unknown

Skidbiz istock four man image

While the first two masons saw only what was immediately before them the third mason had been visualizing his cathedral, dreaming of how it would appear at its completion. Imagine him rising each day anxious to play his full part in that effort. Isn’t that the enthusiasm you would prefer to feel each day, and better yet, have your associates bring with them to work as well? When you undertake your visioning task, strive to be that third mason and to bring your co-creators along with you.

Strategic Visioning:

           Mental process in which images of the desired future (goals, objectives, outcomes) are made intensely real and compelling to act as motivators for the present action.

Unlike strategic planning, visioning is more about lofty aspirations and less about the nuts and bolts of implementation. Oh, there will be plenty of time for the nuts and bolts later, but why spoil the fun. Whether you are setting up a new banana stand, directing an established business, corporate division, a trade association or a township, it will have grown over the coming years and morphed from what it is today into something different. Strategic visioning gives you and your associates that uncommon chance to visualize that future as you wish to see it without limitations.

In the early 1990’s the Campbell Soup Company of Canada committed a few days to a strategic visioning session.  They brought together all the department heads, movers and shakers, etc. and went through numerous exercises. They broke into smaller groups and wrote imaginary future newspaper headlines extoling their desired accomplishments. They talked about “Gate to Plate” streamlining of their products to the consumers, what milestones they would reach along the way and generally about how dynamic they could be. When all the dust had settled they agreed that they wanted to be the “Best Food Company in North America” or B-F-C-N-A.  Thereafter they tested all new ideas and proposals against their vision to be the BFCNA.  “Would these suggestions contribute to us being BFCNA”?  It became part of their daily lexicon. It was used in communications with all the employees and other stakeholders until everyone knew exactly what they were striving to be. They would be the BFCNA.

It’s said that if you are lucky enough to have a job (or business) that you love you will never have to work a day in your life. Here is your chance to plot that course in a form that allows others to share in it. Take the opportunity now to develop and express what you want that to be and nurture it with your associates as co-creators of your success.

Please contact us if we can help facilitate your vision.

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Skidmore Business Solutions Welcomes Gene Rotondo

Skidbiz gene rotundo photo1Skidmore Business Solutions is pleased and proud to announce the addition of Gene Rotondo to the organization as a senior associate. Gene has over thirty years of experience as a business owner and entrepreneur. He is adept at funding startups, managing, expanding and providing exit strategies for businesses and supporting the full circle of business ownership.In Long Beach, California he is well known as the longtime owner of the iconic Legends Restaurant and Sports Bar and thirteen year president of the Belmont Shore Business Association. His background also includes a twenty-one year career as a securities broker with considerable experience in mergers and acquisitions, bridge financing, auditing, operations, asset management and strategic planning for existing and start-up businesses.  His most recent ventures include modular housing in the Bakken shale oil and gas fields, and retail operations in Las Vegas, Nevada. He has five years of experience working with licensing of retail/intellectual properties for Chuck Jones/Warner Bros., Disney and others. He has significant experience with retail credit card systems and functionality.

Read about other associates at: skidbiz.com

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Confessions of a Neophyte Blogger:

Skidbiz image iStock writer

I am learning that promoting ones consulting business is not a laid-back and stress free undertaking.  Apparently writing a blog to place before your audience is a broadly accepted means of such marketing, but what if you have little or no experience in self-bloviating?  Most of my experience consists of posting a few friendly cat and dog videos on Facebook.  So I decided to bone up a little.  I read and carefully dissected numerous other blogs and have determined that a few rules seem to hold sway and give the reader a reasonable incentive to follow along.  They seem to be as follows:

1)      You are expected to offer at least a few pithy words of advice, and certainly more than “Never turn on your blender while holding your cat”.  While that is sound advice, it won’t increase profits or curb your high employee turnover.  Given the never-ending availability of new marketing and management tools and tactics it should be easy to identify a topic of interest.  However, differentiating yourself from the nearly 500,000 other professionals (per the Institute of Management Consultants) is the real challenge.  I have to ask myself, how does one make the subject of reshoring American manufacturing sexy or even interesting?  Is there any real interest in four new ways to apply a SWOT analysis to your business?  And these were a couple of my best subjects?  My head began to spin.

2)      Announce at the top of each article the number of bullet points or rules that you espouse to be really important (Please note here that I have failed to do so, hence the neophyte status) like six ways to turbo charge your SEO, or three imperatives for effective leadership, and so on.  This rule is used to manage your audience’s expectations so that they know you don’t plan to drone on and on about thirty-five ways to manage Millennials or as I like to call it “How to Train Your Dragons”.

3)      Work-in oblique references to your many years of experience and super hero skill sets. This can be a little tricky.  If you don’t claim enough years your wisdom is in question. If you count your work history in decades you are probably a soon-to-be-extinct dinosaur. You may want to use dog years as an alternative in this case.  Mine would be about five dog years from my first spin in the CEO’s chair through my last dozen years as executive coach and business consultant. I like to think that I am a pretty wise old pterodactyl.

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