More articles about rising salaries and the cost of employee turnover seem to be surfacing again, concurrent with attrition trends pointing upward.
While many organizations consider cost of turnover just another cost of
doing business that practice has increasingly serious implications for
the bottom line. The costs are particularly troubling when the loss
involves a top performing employee.
The recent KPMG 2011 U.S. Hospital Nursing Labor Costs Study identifies
several trends and benchmarks in relation to hospital nursing labor
costs in the United States. Other businesses could learn quite a bit
from the results as well, particularly the when it comes to “hidden”
labor costs.
Respondents to the survey indicated it is not easy to quantify all
labor costs related to full-time direct care registered hospital nurses
and mentioned various “hidden” costs. These hidden costs may be
significant and are the result of nonproductive labor hours and
associated opportunity costs, attrition, and time required to fill a
permanent direct care RN position.
On average, 13 percent of hours are believed to be nonproductive
hours. This suggests that additional costs can be attributed to
nonproductivity e.g., due to training, education, and personal internet
use. These costs may be even higher if the nonproductive hours are made
up during overtime at an average 1.5x base pay. It is recommended when
calculating the “all-in” payroll cost of a registered nurse that 13
percent of payroll costs should be added.
Respondents stated base wages of full-time registered hospital nurses
are on average $56 thousand per year (or $26 per hour). Respondents
further indicated that base wages on average 57 percent of all-in fully
loaded cost ($98 thousand per year or $45 per hour).
The average attrition rate for registered nurses was 14 percent.
Respondents stated it takes on average 37 days, or over seven work
weeks, to fill a permanent RN position. Taking into the account the 233
hours, or 28 work days, that are on average spent on new hire
orientation and training, it appears attrition could have an impact of
almost 65 work days, or 13 work weeks, on productivity related to the
affected position.
During that time, contingent staff was required to fill the open
position or overtime hours were offered to existing staff. In some
cases, services may be curtailed for lack of critical support. In
addition, managers and human resources are diverting attention to
recruitment and replacement rather than retention and engagement of the
current workforce.
In addition to base wages, insurance costs, and non-productive time,
recruitment costs added another 2 percent to all-in payroll costs.
Quite a few lessons could be learned from this study. The most
significant story is the impact of hidden payroll costs on the bottom
line. To lower and control payroll costs:
- Calculate “all-in” payroll costs. Most companies already compute
and track the obvious costs – base wages and insurance costs. But few
businesses monitor “hidden” costs including the cost of turnover. Start
today. - Don’t be penny-wise, pound foolish. Assign a dollar amount to
time-to-fill open positions. That extra dollar your experienced
employee is demanding may be a drop in the bucket compared to finding
his or her replacement. - Track rate of turnover. Find out why employees leave, then do
something about it. In addition to higher levels of employee engagement
and customer satisfaction, employee retention saves lots of dollars on
recruitment costs and lowers hidden payroll costs.
