Most businesses would enjoy having a bit of extra money to utilise given the ongoing economic challenges that must be endured.
Cutting back on employment costs can often seem wise, as they do represent the greatest burden for many businesses, but doing this can have unintended consequences.
When making changes to employee compensation, businesses must question whether they can truly afford the cost to recruit new employees if the old ones leave.
As the cost-of-living crisis affects a wide range of people in the UK, many employers will have had difficult conversations about salary increases and may have hoped that staff are not disheartened should the answer be no.
While it is likely not possible to double the salary of every worker, not offering any concession could end up costing a business a similar amount should a replacement be needed.
Getting a fixed figure on the amount that recruitment costs a business is no easy feat for reasons that will become apparent, but there is a strong consensus that retention is more affordable than recruitment.
Data indicates that on the very low end, recruitment will have an upfront cost of around $4,700 (£3,500), but the real figure is far closer to 1.5 or twice as much as the annual salary of the role and could amount to 213 per cent of the salary for an executive-level position.
When these figures are considered, the request for a slight pay bump from a worker that has been diligently completing tasks no longer seems so unreasonable.
The vagueness of the figures is due to the truly unknowable cost to a business of losing a strong worker and seeking to replace them.
Alongside the costs of recruiters and job listings, it will also impact productivity to bring in a new person.
They will need to be trained and clients will need to adapt to the different personality.
Their style of work will also differ, which could have both positive and negative effects on the wider team.
If that person does not make it through probation, the entire process begins again, meaning that those costs can recur endlessly until a suitable replacement is fully onboarded.
Unfortunately, businesses may have little choice but to embrace the upfront cost of appeasing key workers if they want to avoid the drain that comes with recruitment and onboarding.
Younger generations, particularly Gen Z, are less loyal to workplaces and have demonstrated that this is in their best interests to do so.
In the first five years of their career, Gen Z have an average tenure of just 1.1 years in roles, but this job hopping has led to them and Millennial workers earning 31 per cent more than their peers who remain devoted to a single company.
This process, known as lily padding, represents a real challenge for employers looking to manage budgets and keep workers content.
Seeking expert accounting support can be the key for employers in managing both retention and recruitment expenses.
We can review your current position and support you in finding the best options to help staff that are manageable in the long term, as the sudden withdrawal of offerings is unlikely to boost morale.
Aside from wage increases, it may be possible to support employees with flexible working conditions, training and upskilling, additional benefits or just by listening to their concerns and seeking to address them.
Generic advice is not helpful in these situations. The position of your business and the circumstances of your employees are unique, so getting specific guidance is the most effective course of action.
Speak to our team to get ongoing support with managing your employment costs.
