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05/25/2013 Jon Purdy, DPM
How to Decline a Raise Request (Bob Hatcher, DPM)
The loss of an employee obviously affects different offices in different ways. Employee loss in a three employee office is obviously different than that of the twenty employee office. The position being lost is also a major factor. However, there are similar cost calculations attributable to every situation. Ten thousand dollars is a mid-range estimate.
There are a number of factors that go into the costs incurred when an employee is replaced. Knowing exactly how much this costs your office is difficult but certainly not impossible to estimate. There are tangible and intangible costs that both directly and indirectly effect a business.
Here is a partial list of the costs involved when an employee is replaced:
Two week’s pay for terminated employees (Never let a terminated employee work out their two week notice.)
Employee advertising expenses
Time and costs involved in the interview and screening process (This has a significant cost if it is being done properly. There is time and money expenditures in resume filtering, background checks, skills testing and reference checks to name a few.)
Payroll and other benefits termination
Payroll and other benefits set-up
IT and security integration expenses
Paper document production
Wages paid to the new-hire for non-productive training
Loss of production by current employees engaged in training
New employee management including assessment meetings, uniforms, badges, and other integrations items.
Past employee unemployment paperwork and processing
Increased unemployment insurance costs
Increased error rate costing lost revenue, patient dissatisfaction, and time spent correcting mistakes when they are found
Decreased employee morale (This has significant intangible costs to a practice and may lead to the loss of other employees)
Your time spent in the training and management process (This cannot be zero. Your time is valuable to the practice)
Patient perception of staff competency Liability considerations of new-hire mistakes in patient care and compliance oversight. This list contains a number of items that someone not involved in the aspects of running a business would most likely never consider. A great example of this is the answer given to the question of how much it costs to have a $10 per hour employee work for 10 hours. The answer according to my surveys, has been $100 ninety percent of the time. Doctors not in tune to the costs of business operations fail to realize there is an average of 30% that needs to be added to the hourly rate due to payroll fees, withholdings, taxes and benefits. So the 10 hours worked in this example actually costs the doctor $130.
This is the reason practice management is such an eye-opener to many doctors that never considered the business of medicine until a crisis moment in their practices. There are numerous studies on this topic [Costing Human Resources, PWS-Kent, 1991. H.L. Smith and W.E. Watkins; "Managing Manpower Turnover Costs" in Personnel Administrator, vol. 23 #4, 1978]. However, these studies only guide one on their industry specific calculations. Calculating your unique costs are better done through the guidance of podiatry specific management consultation if one is not able to do this on their own.
Jon Purdy, DPM, New Iberia, LA, jpurdy@mindspring.com
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