In this text we will show a detailed list of items according to which any organization can make a detailed list of costs due to a bad choice of an employee or a worker leaving!
In order to calculate the costs, we have to know the price of working hours with all expenses (taxes, social benefits, other benefits) for:
- Workplace for which you have not found a suitable candidate.
- Job position of a HR expert or a personnel department worker who selects the candidates and/or helps in the selection process.
- Job position of a personnel manager: director, owner.
- Job position of a mentor/supervisor who will take care of the newly selected candidate for some time.
A monthly salary with all the expenses (taxes, social benefits, other benefits) for the job position for which the candidate has not yet been selected.
Before continuing with the list of expenses it is important to stress that the costs of making a bad choice or a worker leaving can reach up to 150% of a yearly salary for an average worker. For managerial positions and brokers the expenses are even higher. The reach up to 250% of an average salary!
Let’s assume that the average salary of a worker in a typical Croatian company is HRK 50, 000. If the average expense of a worker leaving or getting fired is 150%, the said company loses HRK 75, 000 per worker who leaves the company! For a company which employs 150 people, these expenses reach HRK 1,125,000 per year! More than one million!
For a broker/sales executive or a manager these costs reach 250%. For a yearly salary of HRK 100, 000, the loss with rate costs of 250% is – HRK 250, 000! So, if only four such workers get fired or leave the company, the costs amount to one million!
4 workers which were wrongly selected = HRK 1,000, 000 in costs!
Next you can read the list of costs you should pay attention to!
List of costs of wrongly selecting a worker:
Costs from a worker leaving:
- You should calculate the costs of the person who is „working instead“or currently working on the job for which you should find a candidate. You should calculate the cost of overtime of part-time hours, that is – the salary with all the expenses.
- You should calculate the cost of reduced productivity – 50% form the amount you are paying for the job position, with all the benefits – for every day, or week while you don’t have the candidate for the position. The calculations will be valid if someone is „covering“or working part-time in that position. If there is no one to fill the position until you find a new worker the cost amounts to – 100%!
- You should calculate the costs of exit interview (if there are any costs), that is the time spent to talk to the employer who is leaving. Calculate all the administrative costs (filling out forms, stopping the salaries, registration of employee and so on).
- You should calculate the cost of (if there is such a cost) the manager/owner who has to understand what is the state of work assignments in the job position that was left, how to „deal with“that work until a new worker arrives and similar. You should calculate the expenses of education and training that your firm invested into the former employer. You should list all the trainings, educations and programs that your company financed (and the ones conducted by your employees, internally!). If they were financed by someone else, calculate the price of the work days used that the employees were absent from work (if there were such days):
- You should calculate the prices of all the licenses, certificates and/or permits you firm paid for so the worker could do his job. If you think that you would anyway pay for, for example, physical examination, you should check in what time period would the former employee have to take the regular physical examination again.
You should calculate how this will affect the productivity of the whole department (if there is a department). Will you as a result of this employee’s leaving have to change deadlines for certain assignments, will his leaving affect the employees who are staying in the company – their reactions, time spent talking about the colleague who is leaving and similar.
- You should calculate the costs of losing the know-how, the skills and contacts that the former employee made in your company. To calculate this use the formula of 50% of the yearly salary for the first year, and add 10% for later years.
- You should calculate the costs of losing clients that the former employee will take when he leaves the company or the costs of keeping a client the former employee was in charge for (for example, a broker).
- All kinds of advertising costs (in the selection process – if there are any). According to some sources, in the USA these costs amount to minimum of 10% to 20% of a yearly salary of the said employee. In Croatia the amount is a lot smaller. However, in order to select a quality employee it is necessary to interest a lot of potential candidates. The higher the numbers of job candidates, the higher are the chances of selecting a quality worker. The higher the number of candidates, more money is spent in advertising!
- The costs of the person doing the selection process. The time spent to understand and analyze the demands of the workplace, the development and preparing choosing strategies, looking through the applications and CVs, preparing the interviews, conducting the testing, checking the references listed, preparing offers and notifying the candidates which were not selected. Only this takes up from 30 to 100 work hours! If there is an assistant or a person helping in candidate selection, you should add another 20 hours (looking at and filling the applications and CVs, making the interview schedule, making arrangements with the candidates who are traveling, eventual travel arrangements and similar.
- If the company is a bigger one, you should take into account the costs of the entire department doing the hiring! There are probably more interviews with people at the top of the hierarchy. If there are more people doing the interviews, more of them should be familiar with all the candidates they are making their decision on – and this takes time. It also takes time to make individual contacts when searching for an ideal candidate. It is estimated that bigger companies should calculate an additional 100 hours.
- Administrative selection costs – doing the protocol, data processing, sending out answers and similar. About HRK10 per candidate.
- Pre-selection costs – it helps in estimating skills, the know-how, abilities, values and behavior. Especially if we are talking about a larger number of candidates. About HRK50 per candidate.
- Other expenses: physical examination costs, drug test costs, the cost of checking reference, checking certificates of good conduct.
Training costs (introducing the job) of the new employee:
- You should take into account the costs of the person doing the training – showing the new employee how to do the job, as well as the costs of the salary for the new employee. Besides, you should calculate the cost of educational materials which help in the training (if there are any!).
- The costs of organized training – in bigger companies this can take up to a couple of weeks, sometimes even abroad! You should calculate the real cost of training and add the amount of the salary of the new employee. When these kinds of training are concerned, the usually come with a lot of educational materials (product manuals, tools and IT equipment needed in the training).
- You should take into account the time all the people spent to assign, explain and supervise the work results of the new employee. It should be the least 7 hours per week, in a period of 8 weeks.
Unrealized productivity costs:
During the time the worker is learning, that is gaining new experience – he is not 100% productive. Look at how costs are made:
- After educating-training the new employee, the assumption is that he is contributing with approximately 25% of maximum productivity in the first 2 to 5 weeks. In this period the costs are 75% of his salary!
- From week 6 to 13 the employee is contributing with 50% productivity. In this period the costs are 50% of his salary!
- From week 14 to 24 the new employee is contributing with approximately 75% of productivity. In this period the costs are 25% of his salary!
- You should calculate the costs of unrealized productivity of the co-workers/colleagues and the people supervising the training process of the new employee – only in the period when they are showing him what to do.
- You should calculate the costs of errors the employee makes while gaining new experience.
- You should calculate the costs of unrealized productivity caused by manager’s, a bigger company department head’s or a smaller company owner’s attention being put on the selection of the employees and the workers selected. At this time, you are not leading and guiding the others workers as much.
- You should calculate the costs of finishing and delivering the projects in which the former employee was an important part of, that is – he was an important contributor.