The majority of commercial office space is occupied by government, business services or finance and insurance industries. Other than government and the Not for Profit (NFP) sector, a prime motivation for every CEO, business owner and manager is the search for increased profitability.
In most instances, a business has three pathways to increasing profitability. The first is through increasing turnover or sales (assuming the cost base remains equitable), the second is through reducing costs, and the third is by improving productivity. I have previously written quite a lot about the relationship between office space and productivity increases, but this article will explore one of the most insidious elements associated with any businesses cost base (including government) and that is staff turnover and its affect on HR costs.
One of the main reasons often quoted for high employee turnover rates is the quality of the working environment or the standard of the office facilities provided. The ability to choose an office that can meet many of your employees’ workplace needs and desires is the secret to attracting the best and brightest to your business and fostering a happy and healthy workforce with low turnover and high productivity.
Staff turnover costs are often underestimated by businesses and can range significantly dependent on industry, level of job complexity and seniority, with the most common figure being quoted at around 150% of annual salary costs. There are both direct expenses (recruitment, training, orientation and administration costs) and indirect expenses (productivity loss, loss of corporate knowledge, customer dissatisfaction, etc.) and we have listed 6 potentially avoidable HR costs to your business below; –
These costs include the time spent in human resource management activities such as preparing and conducting exit interviews, ensuring the return of employer supplied tools and equipment including phones, computers, cars, security access keys, etc., and the administration associated with final pay and internal accounting and management procedures.
The costs of recruitment extend way beyond payments to a recruitment firm (even if they are responsible for many of the following activities) and include time spent on preparing job roles, duties and descriptions, advertising vacancies, short-listing and screening of interviewees, interviewing prospective employees, and instigating administrative and procurement procedures associated with payroll, insurances, superannuation, workplace tools, furniture and other essentials for new hires.
Orientation and Training Costs
The time spent in bringing new employees up to speed and to working proficiently varies greatly dependent on job complexity and position within the business. Direct costs include additional time spent in familiarisation with a new office location, fellow employees, managers and workplace procedures, and specific and concentrated offsite and onsite training, in addition to the cost of supervisory time spent in assigning tasks and reviewing output.
This is perhaps the largest cost and very difficult to quantify. Costs may be attributable to a wide variety of issues including staffing capacity problems causing customer service gaps and the potential loss of market share and reputation, and the loss of corporate knowledge and expertise to deal with specific project nuances and difficulties. The time spent on-boarding staff and getting them up the learning curve is often underestimated. Until employees learn their job, and come to grips with the policies and practices of their new business, they are not fully productive. Dependent on position, the timeframe for this journey to proficiency could range from three months to some eighteen months from starting in their new job. Additional costs include mistakes a new employee might make during this period.
Other Indirect Costs
While even harder to quantify, these costs can be substantial and include issues such as the impact on a company’s reputation, customer satisfaction, client relationships, and sales and development opportunities. Even scarier than any of these costs is the potential time that might pass before an appropriately qualified staff member can be found and recruited. There are instances when such an appointment can take years.
These include the increases directly caused by turnover, such as overtime or contract payments (to cover staff shortages) and general accounting and payroll expenses. Severance pay is also a factor. This is especially significant when it comes to highly-skilled employees and senior-level management.
The savings associated with reducing staff turnover can, therefore, be very substantial and directly increase profits independent of sales volume. Keeping and attracting the best employees should be a key strategy for any business serious about maintaining and increasing their profitability. It therefore stands to reason that a business’s choice of office and the design of its workplace and workspaces, should play a significant part in every talent attraction and retention strategy.