Keeping workers can save money, officials say
Even during a recession, striving to retain good employees is a smart investment for businesses and agencies due to the high turnover costs and the shortage of qualified workers, according to the Oregon Employment Department.
The cost of replacing workers varies depending on the the level of training and skill the job requires.
Although fast food restaurants, as an example, often thrive in a high-turnover environment because of the ease of training and deep pool of workers to draw from, recruitment and training costs in other industries can cost businesses tens of thousands of dollars, said Malcolm Boswell, a workforce analyst with the Employment Department.
Costs tend to be higher to replace employees in fields such as metal fabrication, maintenance mechanics, computer programming and software development, engineering, law enforcement and other jobs requiring specialized training and skills, Boswell reported.
Debbie Gargalis, manager of the Employment Department’s Worksource Centers in Baker City, La Grande and Enterprise, said expenses for replacing a highly skilled employee include advertising and placing a job order with an employment agency or recruiting firm, the time managers spend filling out paperwork, and reimbursing candidates for travel, meals and lodging.
Companies sometimes have to pay to train new workers in skills specific to the business and new employees typically aren’t as productive initially as a longtime worker, Gargalis said.
Boswell cited one example of a multinational fabricated metals company that spent $50,000 for a software program to calculate its turnover costs. Company officials learned they were spending more than $1 million per year in turnover costs.
While some companies don’t consider turnover costs important, Boswell said the lack of concern could be due in some cases to officials not knowing how much the process costs.
In the Northwest, Boswell said the annual turnover rate is about 3 percent, or roughly 57,000 jobs a year.
Gargalis cited a report about several studies on turnover costs published on the Web site of the human resource company Sasha Corp.
One study showed that a business would save $100,000 over 20 years if it kept one front-line employee in an $8 per hour job for that period, rather than having to refill the position every year or two.
The Sasha Corp. data include a study by the Society of Human Resource Management involving a company that operated 53 truck plazas. The study found it cost the company $3,500 per employee in turnover costs, and they had been hiring 200 employees per pay period.
The Coca-Cola Retailing Research Council found that replacing a supermarket cashier costs $3,637, and in the publishing industry, the U.S. Department of Labor reported that turnover costs can be as high as one-third of a new worker’s annual salary.
Cornell University’s Hotel School found that recruiting, hiring and training a hotel front desk employee cost more than $5,000, and a study by Louisiana State University put the cost of recruiting, training and hiring as high as $25,000 for a police officer, corrections staff, wildlife and fisheries worker and other professions where turnover is high because workers face adversities.
To avoid high turnover costs, Gargalis recommends employers take care of their employees, and provide training so workers can advance in the business when opportunities arise.
“You want to retain your best,” Gargalis said. “Reinvesting in employees is cheaper than replacing them.”
During economic downturns, if business slows to the point an employer can’t afford to offer a raise to good employees, Gargalis suggests offering to maintain their current salary and benefits but reducing their hours.
For companies or agencies considering laying off employees, Gargalis recommends cutting hours instead, to keep good employees, even if it means they become part-time until the economy rebounds.
However, when transitioning a full-time employee to part-time, Gargalis said it’s important to make sure workers get enough hours to maintain their employer-based health insurance. Otherwise, the potential loss of health insurance benefits could convince even a longtime worker to look for another job.
Despite the current recession, Gargalis said Baker County is by no means flush with qualified employees.
She cited the 2008 employer survey conducted in October and released this week by Worksource Oregon for the Baker County area.
The survey shows 23 percent of the 296 businesses that participated reported employee turnover is a problem.
The survey also showed 17 percent of employers in the area expect many of their workers to retire over the next few years, and 14 percent are preparing for the losses.
While some employers have already begun searching for replacements for retiring workers, Gargalis said others are working out arrangements where the retiring employees can continue to work part time after they retire.
Some businesses and government agencies have been in contact with the Worksource Oregon offices in Baker City and elsewhere, asking them to keep an eye out for potential employees to replace retiring workers, as well as those who jump ship to pursue other opportunities.
“In many cases these are positions that are not being advertised, and they are not current openings,” Gargalis said.
However, for employers who think the recession has created an employees’ market in which employees can be taken for granted, Gargalis said that would be a mistake.
She said the Workforce Oregon survey found that most employers in the Baker area don’t expect to change their staff levels by next summer.
About 21 percent of employers expect to hire more workers, and fewer than 8 percent plan to cut jobs.
More than 60 percent of employers in the region tried to hire workers during the past year, and about 52 percent reported having trouble finding workers with the skills they need.
Local employers reported that a shortage of skilled workers and lack of benefits were the two biggest factors that interfered with their ability to find and hire qualified workers.
The difficulty in filling jobs caused a variety of problems for employers, including increased overtime expenses, lowered productivity, morale problems, a drop in the quality of production or services provided to customers, and increased recruitment costs.
Given the shortage of qualified workers in this area, and the high cost of replacing workers who leave, Gargalis said it behooves employers to have a strategy for retaining good workers.
Just as recessions and periods of rising unemployment are a time for laid off workers to re-assess their career goals and get the training they need to achieve those goals, an economic downturn is also a time for businesses to re-assess their plans, Gargalis said.
“You’ve got to do a cost benefit of everything you do,” she said.
As part of that process, she suggests business owners and managers ask their employees for suggestions about improving the operation.
“Your best investment is your employees. Ask them, ‘if you were making decisions what would you do to get through these tough times,’ ” Gargalis said.
In re-assessing business plans, she recommends owners look at their market niche, try to figure out the potential for growth, and make staff and other adjustments accordingly.
The process could include gauging how the customer base has changed, and whether now may be a good time to expand, or get back to basics, Gargalis said.