Construction Accounting Article -
Do You Know How Much Worker Turnover is Costing You?

Target Audience: Construction Industry Professionals, Contractors, Construction Business Owners, Construction Accountant Interest, Construction Management, Employee Turnover Control Interest, Benefits, Salary and Taxes Interest, Employees and Employers

Every time an employee leaves your construction company, it costs you money in terms of lost knowledge and time and lower employee morale. And if many workers leave annually, you’re losing a lot of money. Plus, with the ongoing labor shortage in the construction industry, finding qualified replacements isn’t likely to be easy.

Estimates on the cost of turnover vary widely but, however you crunch the numbers, it’s expensive. And that’s precisely why you need to figure out how much turnover is costing your construction business.

Run the Numbers

You can get a rough estimate of turnover costs by, first, calculating 30% of a departing employee’s salary for benefits and taxes. Then, to estimate the cost of hiring, training and integrating a replacement, add the 30% figure to that person’s salary and multiply the total by 0.25.

Let’s say a craftsman makes $50,000 per year, and you pay another $15,000 (30% of $50,000) in benefits and taxes. Your total cost for that employee is $65,000 per year.

Now let’s say the employee quits. By the time you hire and train a replacement, set up benefits, and provide orientation and any required equipment, you may have spent $16,250 (25% of $65,000). Multiply that by 10 employees, and you’ve spent six figures before a hammer ever hits a nail. And that estimate may be conservative.

Consider Other Factors

You’ll also need to factor in a drop in productivity while your remaining employees try to fill the gap, which could trigger a decline in quality, timeliness and customer service, causing the cost to skyrocket even more.

Some turnover is, of course, inevitable. Baby boomers are retiring in larger numbers annually, and sometimes you have no choice but to fire a worker. You can, and should, budget for that. The real problem is unplanned turnover.

When the economy is booming, your employees may have their choice of jobs, and they may choose to move to greener pastures. When the economy is less robust, you may have more workers from which to choose, but your competitors may be working harder to lure your best employees away.

Of course, as mentioned, the labor shortage in the construction industry may leave the job market in employees’ favor — even during slower economic periods.

Revisit Your Hiring Process

In either case, it’s in your best interests to reduce unplanned turnover. How? Start by calculating what your turnover rate is now.

There are many possible variations in calculating turnover rate, but it essentially involves taking your average number of workers who leave each year, and dividing by your total number of employees. So if you have 100 employees and 20 of them, on average, quit, retire or get fired every year, your turnover rate is 20%. That may be good or bad compared to other contractors in your area, but it can be improved — and it may not take much money to do it.

First, look at who’s leaving and why. If you’re firing a fair number of people, it may be time to review your hiring practices. Are you writing job descriptions that accurately convey the skills and attributes you require? Do you perform reference and background checks on every candidate?

Next look at the other reasons people quit. Compensation is always a primary factor, but it isn’t the only one. Lack of employer recognition, inadequate training, disagreeable management style and little room for advancement can all play a role in an employee’s decision to leave.

Be the Best You Can Be

Ultimately, if you respect your employees, establish realistic performance expectations, and pay them fairly, they’ll be less likely to move on. At the same time, while asking your workers to be the best they can be, you should expect the same of yourself and your management team. Contact your construction accountant for more details.

Find out how our expertise in construction accounting can add value to your business. Email us or call us at 1 (888) 875-9770.

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