Salary Cap

How much are you spending on your employees?

This issue of SpaRetailer is an actuary’s dream come true: Numbers, stats and percentages, presented to help in all areas of your business. If you ask any business owner about their biggest recurring expense, they’ll say employees and payroll. In his Harvard Business Review article, the late business guru and consultant Peter Drucker says: “Organizations are no longer built on force but on trust. The existence of trust between people does not necessarily mean that they like one another. It means that they understand one another.” Keep the very best people on staff with these ways both employers and employees — even peers — can create an unparalleled work and hiring experience.

There’s no greater wake-up call for a business owner or manager than the hard costs associated with an employee. Business consultant Tom Grandy of Grandy & Associates says some of these expenses are fixed, while others vary dramatically. “In addition to wages and compensation, Social Security (on the part of the company) is 6.2 percent of the first $118,000 earned,” Grandy says. “Medicare is currently at 1.45 percent of gross salary, regardless of an employee’s earnings. Federal Unemployment Tax (FUTA) is computed at 0.008 percent on the first $7,000 earned.” It’s worth noting that most employers, according to the IRS, pay both a federal and a state unemployment tax; it is not deducted from the employee’s wages. Grandy says state unemployment taxes not only vary by state, but also by company. “That amount can be as low as a half percent, up to 8 or 10 percent, because each state has a different upper limit on their unemployment tax.”

With those numbers as a base, there is a variant cost to keeping excellent employees. A revolving door is both imprudent and fiscally irresponsible. Your business has its own cost of training new employees based on their job responsibilities. Sarah Glynn, senior policy advisor at Washington, D.C.–based Center for American Progress, has examined case studies which reveal that, for workers earning less than $50,000 annually, the training cost to employers was equivalent to 20 percent of the employee salary. There is a caveat to this mean average, Glynn says: “That number will probably vary, up or down, for each business, but it is an accurate average,” Glynn says. “A business owner might ask how it could possibly cost that much to replace someone. But if you think of all that goes into hiring: potential overtime paid to staff covering that open position, costs of a manager who reviews applications and resumes and vets a candidate, it adds up fast. There’s also the cost of training a new hire and the fact they won’t have the same level of productivity as the previous employee, especially while the new person is in training.” What will your actual costs be? The Center for Economic and Policy Research has an online calculator that crunches your numbers automatically. Find it at cepr.net/calculators/turnover_calc.html.

When looking at the line-item expenditures related to each employee, Grandy says it’s easy to get overwhelmed. There is no national average on what a company will need to spend on an employee, because, he says, “there are variables such as the type of benefits a company might offer to its staff such as health care, profit sharing, paid time off, paid (or unpaid) vacation time, possible lost customers due to employee attitude and morale — all of that is in direct relation to the actual cost of an employee and the cost to your business.

“I suggest paying as high a wage as you possibly can,” Grandy says. That’ll help you attract the best and most talented employees possible. The higher the caliber of employee you have, the less expensive they are because you won’t have to deal with the high costs related to employee turnover.” Call that long-range thinking.

Why strive to have highly adept, happy and productive staff? Low turnover is a business asset; it also comes with a cost. For example, a 2013 study by CareerBuilder concluded that 50 percent of employees would have stayed with their previous employer if there were a program of recognition for a job well done. Ladan Nikravan, corporate communications manager at CareerBuilder, says that result points to the desire to be just as happy in the workplace as you’d be with the job you’re hired to do. It also cuts across very distinct demographic and psychographic lines. Nikravan sites CareerBuilder’s 2016 Candidate Behavior study, saying that 80 percent of baby boomers indicated they’d compromise on salary if it meant a more enjoyable hiring experience, compared to 76 percent of respondents from Gen X and 73 percent from Gen Y.

You need to know the audience (your staff) with regard to a recognition program, or series of events designed to build staff camaraderie and loyalty. Off-site group events like company picnics, staff dinners or a bowling team shouldn’t be jettisoned just because it might seem old-fashioned to you as a manager. The real question is: What works for your staff? Maybe your staff nominates and votes for a weekly recipient of a company paid lunch for two. If you have an Employee of the Month program, take it a step further by recognizing your employee on your social media pages with a written proclamation or video. Let them bask in the spotlight of appreciation. Even a short, handwritten note expressing thanks for a staffer’s involvement in a project goes far in creating a positive work environment. I once had a boss who’d snail mail such notes. Do that in our era of texts, Google Hangouts and email.

If you’re not sure what will motivate your staff, go beyond the button-down confines of traditional HR communication by sending your staff a short, free-to-generate survey via SurveyMonkey.com. Responses can and should be anonymous. The bottom line is not to guess, but to ask before implementing. I know a regional call center manager with a major health insurance provider who always seeks opportunities to connect with, motivate and thank her various regional staffs for doing a great job. Overall, she’s exemplary at this. But when she attempted to duplicate a staff workout program in another office — it bombed. Your staff will tell you what will work; just ask them and implement. It will pay dividends. Something as simple as flex time to accommodate a child’s illness or employee doctor appointment is seemingly worth its weight in gold to an employee.

Much has been written and discussed in business media about benchmarking employee retention rates, productivity, customer interaction and strategies. It raises the question of whether adhering to statistics and data beats relying on your gut and human touch as an employer. “I think it’s a combination of the two,” Glynn says. “I’m a data person, so I’m a fan of having more data and information. I think it best to be expansive in what type of data points are being collected about employees. It is useful for employers to track these sorts of things, because you want to make sure that your best employees are being rewarded for excellent job performance, it’s great for morale, too. There should be a certain baseline of taking care of your employees and making sure people have their basic needs met; both in terms of pay scale and benefits that is appropriate to the workplace.”

Granted, each business has its own, unique fingerprint in the discussion of employee costs. Just as what works for the spa store might not work for the fast-food restaurant next door, or the competing spa store down the street. In that consideration, Glynn offers some sound advice. “I wish employers talked with their employees more and take advantage of the collective brain force they have in place as a sounding board for new workplace ideas, opposed to imposing everything from above or expecting your HR department to always have the answer,” she says. This concept of crowd sourcing ideas can help a business run smoother, unite staff and operate more efficiently, while managing the single biggest cost each business has.

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