Cost of Hiring/Turnover (COH)

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Recruiting, retaining, reskilling: can your company meet the costs of IT staffing? Replacing your company's most important assets may cost more than you think!

As an IT manager, you are working hard to add value to your business by providing revenue-generating or cost-saving systems. The strategic importance and value of your department has never been greater. With project payback higher and time-critical systems' requirements immediate, having the right resources on staff is a must to the success of your team. It is more important than ever to find and retain the best staff possible.

When An Employee Leaves

When an employee leaves the company, he takes the skills acquired and knowledge gained while at the company. This knowledge was provided to the employee at great time and cost to the company.

What's most difficult for companies to face about this loss is the fact that the one loss is compounded by the additional expense of replacing the employee. Studies show that replacing an employee can cost more than three times the employee's annual salary. For any company, a lost employee is lost money. Perhaps nowhere is this phenomenon felt more than in the information technology (IT) industry. Studies show that 78 percent of all IT workers will leave their company before their fifth anniversary. IT workers with eight to ten years experience ~ the category of employee that previously was most likely to stay with a company through retirement ~ are now changing jobs more frequently than ever.
 
What Employers Are Doing About This

As companies recognize the seriousness of this trend, they begin to search for the most cost-effective ways to hire new employees and retain valuable staff. Companies are faced with understaffing and underskilled workers from which to fill positions, and they?re struggling to recruit, retain and reskill employees for the future. One survey shows that the direct cost to fill a $60,000 position ranges from $9,777 to $49,000; however, indirect costs can be even higher.

The Total Cost of an Open Position

The total cost of an open position is much higher than the direct costs when you consider all of the indirect costs in addition to the direct costs ~ for as long as the position has been open.
 
Additionally, it will cost you between 12 and 15 percent more in base compensation to replace the same position. Many times you will have to pay a higher salary for less skills. When you add all of the direct and indirect costs, the total cost of turnover can easily be two to three times the base salary of the position.
 
How Employers are Finding New Employees

To find qualified workers, companies rely on Internet job postings, newspaper ads, employee referrals and more. Be aware, however, that the costs of these measures can far outweigh the results achieved.
 
For instance, if the hiring manager is making $80,000 per year, his net worth to a company is about five times that salary, or $400,000 per year.

With 2,080 work hours in a year, the hiring authority?s time is worth $192 per hour. To directly recruit an employee, this person must spend hours on such tasks as reading resumes, screening and interviewing prospective employees, and sending letters. Additionally, the hiring authority loses valuable work time and focus on company goals, which further costs the company.

Creative Strategies for Attracting and Retaining Employees

The cost of hiring a new employee is significant, and it can have serious ramifications on company morale. To address these issues, many companies are initiating creative strategies for attracting and retaining employees.

Being competitive in recruitment and retention sometimes means ignoring conventional practices and taking unusual actions. According to a recent survey, the top incentive that companies use to retain IT staff is training. All training should be done with an eye toward helping the employee make strategic moves; so it's important to establish clear career paths for key IT personnel to follow within the company.
 
Now that we understand the total cost of a new or vacant position, we can see that it is far more cost-effective to retain key employees than replace them.

What You Can do to Retain Key Employees

JDA Professional Services, Inc., a staffing firm that has worked with hundreds of companies, recommends letting your staff know they are valued. The warning signals are often readily visible, from the weak excuses for time off to the flurry of phone calls. Realize that your top performers are known as such and others are eager to woo them away. Also, ensure that employees realize that they are being paid more than the going rate in the market. Use one of our current salary survey brochures to stress your point. Let us know if we can provide you with extra copies of our latest salary survey.

Many companies are either slow or resistant to unilaterally adjust fixed costs including base salaries, and are using other types of market-based incentive programs.
 
In addition to providing the employee with additional incentives to remain with the company, bonuses keep a company?s fixed costs down because they?re not a permanent addition to an employee?s salary.

Yet another big incentive for IT professionals is a positive work environment that includes privileges such as flextime and telecommuting.
 

Stop and think about this for a moment: if the average $60,000 IT employee changes jobs every two to three years and your direct replacement costs include an $18,000 placement fee and a $3,000 internal interviewing time cost, both of which total $21,000 ~ you already have $7,000 budgeted that you can apply to retain them.

Many employers rely on contractors or consultants to help fill vacant positions. It goes without saying that when such temporary staff leave your company?s premises, skills and knowledge go with them. Factors impacting the cost of retaining or replacing these temporary workers are the same as those affecting the retaining or hiring of full-time staff.

Several of our long-term clients have found a good way to ward off the loss of their knowledge base when such temporary workers leave. These clients carefully scrutinize temporary candidates and select those who could potentially fit into their company. Then, as the workers? contracts or projects wind down, they?re hired as full-time employees by the clients.

Other Incentives

Another important incentive is the signing bonus. In one recent survey, hiring incentives such as signing bonuses are more essential now than they've been in the past as a means of attracting the best candidates.

Other important incentives include exposure to other parts of the company, availability of new technology, improved benefits packages, and special projects.


JDA recognizes that the employment landscape is always changing.  The trends we've outlined will continue to present challenges for employers over time.

To help employers determine the most cost-effective route for hiring employees, we've developed a Cost of Hiring Calculator on our Website.  It will help you examine the costs of hiring new personnel versus outsourcing that responsibility to a company such as ours. We also have developed a number of creative solutions for helping companies retain their staff and fill vacant positions. You can look to us to help you find key direct hires or talented temporary workers including contractors and consultants.

JDA is a valuable partner when you are developing your staffing and retention plans.  Contact James at 713-548-5444 or jdel (at) jdapsi (dot) com.