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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