Costs and expectations of new hires

How long do you expect it to take for new staff to become profitable?

In most cases when you take on a new employee it will take them some time to get up to speed, hence as the employer it’s likely you won’t see a return on investment as quickly as you may first expect. For the average role the lag can be approximately two to three months and for more technical or complex roles the average time is usually around five to six months before the new hire reaches full productivity and feels comfortable and confident in their role. Up until this point the employee has cost the employer both time and money which needs to be recuperated before any profit can be seen.

When you employ a new permanent team member the cost to the business can be high, with both the initial cost of finding the right person and then the costs involved in training.  The new employee needs to be trained in the company’s specific systems and procedures and the cost of another staff member’s time to do this also needs to be factored in. Remember, wages are usually by far the biggest cost to any business.

Beginning with realistic expectations and a good induction plan can be the difference between significant loss and growth for your business in the long term. For the best chance of success (for both employer and employee), it is essential to get the process right from the start. A clear and concise induction programme is a very good way to provide the new hire with a good understanding of company procedure and can go a long way to making the new hire feel valued and get them up to speed as quickly and efficiently as possible. Existing staff hold a lot of valuable business knowledge that can save new staff a lot of time in finding the necessary information and resources to get their job done right. Helping build a staff support network around the new employee and encouraging questions from day one significantly speeds up the on-boarding process.

It helps if clear management expectations are spelt out in the job description with associated key performance indicators (KPIs) which have been agreed upon at the time of employment.  In this way the employee knows what’s expected of them right from the beginning and gives a quantifiable standard by which both the employer and employee can measure performance against. Regular feedback in reference to these KPIs and the offer of additional training if required is essential in the early stages to ensure the new employee is on track and confident in their role.

There is no guarantee that by increasing staff, profit will increase and, if anything, initially profit will decrease until the person is comfortable and productive in their role. Due to the time this takes, staff retention is essential to help maintain company profit.  The ideal is to have on average an annual staff turnover of 17% or less. If you have a higher staff turnover this can greatly affect the company’s bottom line, as a lot of time and money is spent on finding and training new hires.  If your company is suffering from high attrition, it may be worth finding out where the problems lie. The best way to do find out why people are leaving is to conduct an exit interview.  Exit interviews are often overlooked and in my opinion should be held by an impartial person like the Human Resource Manager rather than the leaving employee’s direct report. Where causes are identified, address these quickly. It is certainly more profitable to keep a good staff member than it is to keep spending money looking for and training people.

Statistics from Auckland University Faculty of Business.