May 2017 HR Newsletter
April showers bring May flowers, and this month we are bringing you the latest edition of our HR Newsletter! This month we look at the costs of employee turnover and how you can measure them, the pros and cons of working interviews and pre-employment testing, and whether you’re required as an employer to disclose pay data and salary guidelines to employees.
The Real Costs of Employee Turnover—And How to Measure Them
Employee turnover is expensive—more so than you might think. According to a recent survey by the Society for Human Resource Management, the average cost-per-hire is $4,129. However, turnover costs can vary depending on the length of time it takes to fill the role, the importance of the position to the employer, and the employer’s industry. Some costs are easily calculable, such as those of recruiting, hiring, and onboarding. Other costs can be difficult to measure, such as the impact of a termination on employee engagement. Easily measurable or not, all these costs hurt your bottom line.
Fortunately, many of the costs of turnover can be measured and predicted, so you can budget for employee turnover and operate with a reasonable sense of your yearly turnover costs. Here are the main expenses to expect:
Recruiting and hiring. These costs include the expenses for advertising the open position, background checks, and any pre-employment testing you do. They also include internal operational costs for the time taken to market the job, screen applicants, and interview candidates.
Onboarding. Here we have the costs of orientation and training materials, as well as management’s time to provide training and additional supervision to the new employee.
Burden on staff. Having an empty seat means other employees have to pick up the slack. Depending on your role, they may also have to cover for you while you spend valuable time looking for a candidate to hire. Even after the new employee is hired, it takes time to train new people. You may even have to plan for overtime so that employees temporarily assigned other job duties can still get their own work done.
Productivity loss. Let’s face it, even with everyone pitching in and working extra time, productivity will drop. And, after the hire, it will take time for the replacement to reach the former employee’s level of productivity. As it can take on average more than 40 days to fill a position, and longer for the new person to master the role, this productivity gap is no small thing.
Mistakes. Errors are likely to increase when employees are covering the duties of their former coworker and when the new hire is learning to do the job. These are, unfortunately, a cost of doing business.
Disengagement. Employee engagement is likely to be low when turnover is high, and if a terminated employee was well-liked, morale might take a momentary plunge after the termination.
The first three costs listed above are ones you can and should track. They’ll give you a history of your costs-per-hire and enable you to predict future turnover costs. You can estimate annual turnover costs by adding up these costs for each employee and multiplying the total number by your annual turnover rate.
The latter three costs may, to some extent, be inevitable costs of doing business, but you can minimize those costs by working to decreased turnover. Put thought and effort into your recruiting, hiring, and onboarding procedures so you hire right the right time. Engage your employees and retain them longer by building and maintaining a healthy company culture. We have lots of resources on the Support Center to help you bring in and keep the best people.
Working Interviews and Alternatives
Few things are more frustrating for employers than finding out that a new hire oversold their knowledge, skills, and abilities. The employee looked great on paper and appeared confident and competent in the interview, but when it came to doing the basic duties of the job, they just didn’t have what it took.
To lessen the likelihood of this unfortunate situation, some employers want to see the candidate in action before formally hiring them. They’ll invite the candidate to spend a day or so at the workplace, shadowing a seasoned employee or doing some of the tasks of the job. This is known as a working interview. It’s legal to conduct working interviews, but there are serious drawbacks and risks to understand and consider. Consequently, we generally don’t recommend doing them. However, if you do conduct them, here are some issues to be aware of:
First, working interviews must be compensated at a rate of at least the minimum wage. You’re basically hiring the candidate as an employee for that span of time. At the bare minimum, you would need to have the person complete a Form W-4 and Form I-9 to do the work. You cannot classify them as an independent contractor as they don’t meet the legal criteria for that classification. Legally, they are temporary employees – even though the time is fixed at one day or a couple of hours. Should you decide to go this route, we recommend that you have a check prepared for them to take with them at the end of the day. This way you don’t run afoul of any state laws pertaining to the delivery of final paychecks.
There are several risks to consider if you decide to do a working interview. One is that the candidate could be injured during that time and you would be liable for a workers’ compensation claim. If the employee wasn’t reported and paid correctly, your workers’ compensation carrier may not cover the claim. Additionally, candidates completing working interviews could file for unemployment if you do not hire them for additional work after the working interview. Unemployment tax is tied to the prospect’s wages during the preceding year, not to the employer. That said, the shorter the period the person is employed by you, the less they will draw from your unemployment account.
Luckily, there are several alternatives to the working interview.
Alternative 1: Use a Temp Agency
If it is essential that you observe the candidate in your office under regular working conditions, you can contact a temporary agency and inquire if they would hire the candidate for a single day. The person would then be the employee of the temporary agency and no employee-employer relationship would be created between your company and the candidate. If you anticipate a lot of working interviews, this might be a good option to explore. You will, however, pay a premium for this service.
Alternative 2: Skills Testing
Another option is making a skills test part of the interview. The difference between working interviews and skills testing is the environment in which they are done. During a working interview, you ask the candidate to work alongside an employee or complete tasks that are a benefit for your organization. For instance, if you were to ask a candidate for an accounting position to work on your next payroll for four hours with the intention of using their work, you would have to pay them for their time. In contrast, skills testing involves setting up a scenario and asking the candidate to complete certain tasks on their own that will not result in a net gain to your organization. For example, you could provide a candidate with old payroll information, assign them a task with that information, and then assess their work for accuracy. This would be an acceptable unpaid skills test.
You can also ask an applicant to complete a skills test exercise at home. You will generally want to make sure that the amount of time it will take to complete the exercise will be reasonable – around an hour or so, not a full day. Typically, only finalists for the position should be asked to complete such exercises.
Whatever kind of testing you decide to do, there are some general guidelines you should keep in mind. The Uniform Guidelines on Employee Selection Procedures (UGESP) – jointly adopted in 1978 by the Equal Employment Opportunity Commission, the Civil Service Commission, the Department of Labor, and the Department of Justice – provides a framework for determining the proper use of tests and other selection procedures. The guidelines were designed to assist employers, among others, with federal requirements prohibiting employment practices that discriminate on the grounds of race, color, religion, sex, and national origin. The EEOC recommends the following best practices for testing and selection:
- Ensure that employment tests and selection procedures are job-related and appropriate for your purposes. For example, a proofreading test might be appropriate for an editing position or an administrative assistant job, but it would not be a valid test for an automobile mechanic or an electrician. While a test vendor’s documentation supporting the validity of a test may be helpful if you find your company in litigation, you as the employer are ultimately responsible for ensuring that your tests are non-discriminatory, both in intention and effect.
- Assess whether your selection procedures unintentionally screen out a protected group – for example people of a certain race or sex. If so, determine whether there is an equally effective alternative selection procedure that has less adverse impact and, if there is one, adopt the alternative procedure.
- Keep your tests and procedures up-to-date relative to the specific positions. Job duties change over time, and as they change, so should your employment tests and selection procedures. There’s no sense testing for skills if a job no longer requires those skills. Tests and selection procedures should be predictive of success in the job.
- Make sure whoever develops the tests, purchases them from a vendor, administers the tests, and assesses their results understands the effectiveness, appropriateness, and limitations of the test. Tests can a useful management tool, but managers who use them need to know what they’re doing.
If you want to avoid the hassle of pre-employment testing, another way to get an idea of an applicant’s skill level is to ask follow-up questions during the interview process and request that the applicant provide examples. So, if a candidate says in the interview that they have a particular skill, you could ask them to tell you about a time they used that skill or how they might handle various scenarios that require that skill. You could also pose questions that only someone with that skill would know how to answer.
Question and Answer
Question: An employee has requested company wage guidelines. Are we required to show these to them?
Answer: No. Some employers choose to disclose the salary ranges for jobs, but you are not required to show an employee your company wage guidelines, nor do you need to share with them what other employees make or what criteria you use to determine their individual salaries.
However, you may need to allow employees access to their own personnel file or payroll records upon request if doing so is required by state law or your company policy, and we would not advise preventing employees from discussing their wages or other terms and conditions of their employment. Section 7 of the National Labor Relations Act protects the right of employees to discuss these matters with each other.
In this case, the employee is presumably asking because they believe some wages – quite possibly their own – are not fair. They may also have information about how much their co-workers are making. We recommend that you be prepared to have a candid discussion with them about why they are paid what they are paid and the company’s compensation strategy or philosophy in general. Although you aren’t required to have such a discussion, chances are something is brewing and a conversation may help deescalate the situation and make them feel heard.
HR Tip of the Month
Make sure you’re calculating overtime on workweek basis, not a pay period basis. Non-exempt employees must be paid time and a half for all hours worked over 40 in a workweek, regardless of total hours worked in the pay period.
The workweek is the 7-day, 168-hour period during which you track employee time to see if anyone has worked more than 40 hours and is therefore entitled to overtime. For instance, many companies set their workweek to begin at 12:00 am Sunday morning and end the following Saturday at midnight. Your workweek shouldn’t fluctuate, and your employees should be aware of when it starts and ends (hopefully, that’s in your handbook!).
The most common error we see here is employers on a 2-week payroll cycle thinking that they don’t have to pay overtime if the employee didn’t work more than 80 hours in the pay period. That’s not the case. If an employee worked 50 hours in week 1, and 30 hours in week 2, they’d be entitled to 70 hours of straight time and 10 hours of overtime during that pay period. In week 1 they did 10 hours of work above and beyond 40 in the workweek and are therefore entitled to overtime, regardless of how many hours they worked during the rest of the pay period.
May 14: Mother’s Day
May 20: Armed Forces Day
May 29: Memorial Day
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