How Much Do Your Lower Paid Workers Really Cost You?

Do you know whether or not your unskilled lower paid workers are being managed cost effectively?

Lower paid – high importance

Business concerns expressed about retaining employees typically centre on specialist skills and key senior jobs; but what about the lower graded section of the workforce, is this being managed as cost effectively as it could be?

Employees at the lower end of the pay scale are key to business profitability, and employment policies designed to retain this group can generate real benefits.

What type of jobs are we talking about?

In monetary terms workers below the average earnings level. Clearly, workers your business would include in this group depends greatly on the employment structure of your business, the industry or sector in which it operates and the labour catchment area on which you can draw.

Typical jobs include those in process lines, call centres and basic administration in addition to the traditionally lower graded positions in retailing, hotels and food production.

Perhaps none of these positions individually could significantly impact on the business bottom line, but as a group the impact could be significant.

How many of these people do you lose that you do not want to, and what are the costs involved?

Crude turnover figures are used by the majority of major surveys of employee turnover and include all leavers, both voluntary and involuntary. What is important to the business is voluntary turnover and the costs of this. I am not concerned here with academic analysis, but with some key considerations for businesses to improve their employee retention rates.

Oh, I here you say, the cost of losing my lower paid workers is recruiting replacements, an ad in the local paper or an agency fee. Think a bit further beyond the obvious and it is concerning how the costs add up!

Short notice periods

 Typically workers in this group have short notice periods, meaning workers can be lost at short notice – the consequences:

  • Stress on the manager or supervisor involved in reorganising the remaining workforce;
  • Extra work for those remaining in the team, perhaps causing dissatisfaction which could lead to further losses;
  • Loss of productivity;
  • A Human Resources Manager, or in a small business the Finance Director/Company Secretary working on recruitment problems instead of being able to concentrate on more strategic issues to take the business forward.

The costs

These consequences are sometimes difficult to measure and to cost, but cost they do! Add these to the more obvious costs of:

  • advertising the post;
  • services of a recruitment agency;
  • time spent assessing applications and interviewing;
  • training the new recruits;

and the cost of losing your low paid employees is becoming significant for the business. This is before considering costs associated with:

  • increased risk of accidents;
  • loss of productivity whilst the new recruit settles in and has reached the top of the learning curve;
  • the impact on the image of the business if it becomes known for being unable to retain its employees.

Being under pressure to recruit replacements could also mean that the selection process is compromised and the business ends up recruiting unsuitable employees in the race to fill vacancies.

The true cost of turnover can therefore be significant. Whilst research in this area conducted by the Chartered Institute of Personnel Development, includes few details of organisations who do attempt to cost turnover, figures that have been obtained show an average cost for all grades of around £4800 per job; and that the true estimated cost of replacing manual grade jobs can be in the order of £1500 per job and in Administration Secretarial and technical as much as £2500 per job.

Motivation and Retention

So, if I’m successful in recruiting the employees that I want in this group, how can I motivate them to stay and be productive?

There are factors outside the control of the employing business which can drive an employee to move on, for example a partner relocating; but recent research suggests that it is relatively rare for people to leave jobs in which they are happy as most have a preference for stability. To look for alternative employment suggests that the employee is dissatisfied with some aspect of his current job, and this might not just be the pay.

CIPD [Chartered Institute of Personnel Development] research highlighted that an employees poor relationship with a line manager can be an important reason for individuals leaving their organisation. Lack of training and development opportunities is also a major reason for employees leaving.

Expectations are sometimes raised too high during the recruitment process, resulting in people accepting jobs for which they are unsuited.

Review your employment policies

Some elements of employment policy which can influence whether an employee stays or leaves, with particular relevance to this lower paid group include:

Hours of work. Each business has its own requirements in terms of working hours and these may not always suit the employee. It is often seen as difficult from a management point of view to manage part time workers and flexible working hours but these can be key for workers who have domestic responsibilities and other considerations outside of work. Time spent looking at ways of reorganising the working schedule could bring benefits to the business.

Training and development opportunities. Potential is often hidden in the lower paid worker who has few qualifications. In house opportunities for training to allow workers to apply for more senior positions in the business can benefit the individual and the business. This need not be resource hungry, on line courses can be used to support learning and can also be used as a ready reference for other workers already in higher paid roles.

Working Environment. Another dissatisfier for some employees; is the environment as pleasant as practicably possible to work in? Could improvements be made? This may be the physical environment, relationships within the team, the organisational culture or rule set – what do your current employees think? A perception of unfairness is a major cause of voluntary resignations.

Communication and Involvement. Whatever level an employee is employed at, being able to take pride in the business and knowing key information about it gives employees a sense of belonging. Have a look at your internal business communications and how, or whether, line managers pass on information relevant to employees within their team.

Time spent providing sound induction information, and encouraging managers to carry out regular probationary performance checks also reinforce the message that the business cares about its new recruits.

Conclusion

Recruitment and retention is not an exact science, understand the real needs of your business, what motivates the people you wish to engage and design your policies to match; and, in the same way you manage any other business resource – explore the costs, this may change the way you do business.

Linda Ryan

Human Resources Consultant

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