How Much Will That New Employee Really Cost?13th July 2016
Do You Really Need That New Employee
Things were going well for our client, which sold computer hardware. So well in fact, that they were having trouble keeping up with their rapidly growing sales.
Each time an order came in, a staff member would jot it down on a piece of paper, which was then placed on an in-tray to be processed later. If they went home early, or if the orders came in even thicker and faster than usual, the little pile of papers piled up on their desk.
The rest of the team regularly had to field enquiries from disgruntled customers, wondering why their order had never turned up – and sift through a mountain of handwritten scribbles, trying to decipher which order was which.
The business owner concluded that the staff member in charge of taking orders could not handle the extra volume, and became convinced that they needed to take on an additional pair of hands.
It’s the same conclusion many growing companies come to, when their workload increases.
But today I want to urge you to think carefully before you make that new hire. Can you really afford it? And is there a better solution?
Very often, companies under-estimate how much a new employee is really going to cost them.
Beyond the headline salary (together with National Insurance, pension obligations and payroll administration) you’ve got to add in all the recruitment costs – the advertising and agency fees, as well as the time invested by you and/or others in the company. Then you have to supply IT equipment, desk space, and no doubt a string of benefits, from free coffee to private healthcare.
There are hidden costs to absorbing that new worker, too. Every new employee needs to be inducted and trained. It’s estimated that it takes an average of 23 weeks before an employee gets up to full speed – and much longer for more complex roles.
And remember, you still have to pay this person when they’re not being productive – enjoying their holiday entitlement, at home sick, or wasting time at work (let’s face it, even people who own their own business waste some time at work – or at least I do).
Plus of course, you still have to pay them when you’re having a slack month. In fact, with no compulsory retirement age, I think of taking on a staff member as a lifetime commitment. What will that 30-year-old employee cost over time?
And let’s not start on the risks to your business if you hire the wrong person.
Now, this doesn’t mean that hiring is always the wrong decision – clearly that’s not the case! But before you start the search process, I suggest you examine whether your processes can be improved first.
When a business is growing fast, it is often wedded to ways of working which may have been adequate when it was smaller – but are completely inefficient when it expands.
Take the company I told you about earlier. They really didn’t need more hands – they needed to optimise the way they handled orders. Once we put into place Exchequer, the financial software I told you about last week, their worker simply had to key the orders directly into the system, so they got processed immediately, no details were lost, and the orders were filled much faster and more efficiently.
It was about the system, not the manpower.