“You can’t manage what you don’t measure.”

-Peter Drucker

The quote is an oldie, but a goodie, and applies to every aspect of your business. 

• • You want to make more money? You have to track your cash flows. 
  • You want to be more efficient? You have to track your output.
  • You want to improve your working environment? You have to track HR.

That last one may seem different than the first two—human resources feels so…intangible. It’s full of soft, qualitative information. Even things like employees’ performance can be hard to put into numbers.

But just because it might seem a little fluffy, doesn’t mean it is, and it doesn’t mean it’s any less crucial to your business’ success.

Employee expenses are likely the biggest costs on your books. If they aren’t carefully tracked, they can quickly become a black hole, and leave you, as a business owner, scratching your head wondering why employees are disengaged and your productivity is slipping.

If you want to get control of those costs, here are three tips to get you started:

• • Identify what you’re currently spending on your employees
  • Assign dollar amounts to hidden fees
  • Account for financial exposure to liabilities

Identifying Spending

Let’s take Peter Drucker’s quote a step further: you can’t measure what you can’t see.

Money can pour out of a business in dozens of places. We might often dismiss these costs as insignificant, or assume they’re an inevitable cost of doing business, but every dollar spent that doesn’t create value for your company is a dollar wasted—and that waste can add up to tens-of-thousands of dollars over the course of a year.

So, your first step in quantifying your employee costs is finding the holes.

If you don’t already, start tracking things like:

• • Attendance (including when employees arrive and leave work)
  • Paid time off (including sick days and injuries)
  • Employee satisfaction & performance
  • Health benefits claims vs. premiums paid
  • Management time allotted to HR

With this information in hand, you can start to truly understand where your money is going.

Assigning Dollar Amounts to Hidden Fees

Everything comes with a cost. Even the amount of pep in your newest employee’s step has an impact on your bottom line. While it’s impossible to attach an exact figure to everything, with a few assumptions, we can almost always get close to a true cost for things we can barely see.

For example:

• Calculate the true cost of turnover using 33% of the departing employees’ salaries
• Add up lost wages from absenteeism by counting the time employees arrive late or leave early over the course of a month and multiplying it by their hourly wage
• Count the cost of injuries by assuming $40,000 in expenses per injured worker (which includes paid time off, replacement labour and overtime, increases to WSIB premiums, and disengagement)

For a full list of  things to consider when calculating your costs, reach out to an expert at hello@eiosolutions.com and we’ll help break them down.

Counting Exposure to Liabilities

Even if government fines or lawsuits catch you by surprise, they have to be paid, so they count as employee expenses. The best way to prepare for them is to determine what you might be on the hook ahead of time.

Run down a list of things a Ministry of Labour rep might audit you for (and their associated fees), including:

• Health and safety policies and procedures
• COVID-19 protocols
• Employee documentation
• And training certifications

Review employee contracts with a legal expert to understand their rights as well as your own—especially regarding layoffs and terminations—to identify severance entitlements and learn what could constitute a wrongful termination (and what the settlement costs could be).

If you’re risk averse, you can count these liabilities as presumed costs and plan accordingly, or you can make assumptions about the likelihood of them occurring. If, for example, we assume a 5-10% chance of a Ministry of Labour audit in any given year, we can estimate our total annual cost at 5-10% of our total exposure.

Managing Known Costs 

Once you get a full picture of your employee costs, you can make informed decisions about how to spend your money.

Let’s look at turnover, for example: 

If five people quit each year and it costs around $50,000 to replace them (assuming $10,000 per employee based on salaries of $30,000), you can ask: how can I invest some of that money to bring my turnover down? If a $10,000 investment in benefits convinces two of those people to stay, you save $10,000 in total and your employees are happier on the whole. Your business improved, and it didn’t actually cost you anything in the long run!

Getting Started

Insights empower better business decisions, so one of the most important things owners can do is get a full picture of their employee costs. The great news for small businesses looking to adopt a data-driven approach to HR: we at EIO Solutions can help—free of charge! 

We’re invested in small business success, and want to spread our new management philosophy as broadly as possible, so we’re offering complimentary 1:1 EIO Health Checks to all qualifying businesses. In a 90-minute session, an EIO Expert will work with you to understand your business and create a scorecard to quantify all those hard-to-see employee costs. From there, we can create an action plan to take control and turn those costs into investments.

To learn more and book your session, simply visit eiosolutions.com