January 21, 2013
In these circumstances, Disaster and Hardship Relief Funds are an effective way to address an employee’s immediate needs so the return to work is a smoother, quicker process. The most easily measurable benefit for a fund sponsor is the positive effect it can have on reducing employee turnover and its related costs. Although the theory is less quantifiable, proof of effectiveness lies in the productivity increases of those granted relief.
Some companies feel that a Disaster and Hardship Relief Fund has reduced employee turnover by helping employees deal with the financial hardships that are dramatically impacting them and their families. This is especially true for younger employees who, when faced with catastrophes, sometimes quit their jobs and return to the family nest. If they can get the assistance they need, these employees may be able to get back on their feet and back to work sooner.
The costs of employee turnover are positively correlated to the skill level of the job and its corresponding pay level. Even so, turnover in lower paying jobs can be costly. The Society of Human Resource Management calculated an estimated cost of $3,500.00 to replace one $8.00 per hour employee when all expenses from recruiting, interviewing, hiring, and training, as well as the element of reduced productivity, were considered. This estimate was the lowest of seventeen nationally respected companies that have also calculated employee turnover.
In a WebProNews article, author Ross Blake pointed out that other sources note that it costs 30–50% of the annual salary of entry-level employees, 150% of middle level employees, and up to 400% for specialized, high level employees.
According to Heather Boushey and Sarah Jane Glynn in their November 16, 2012 report, There are Significant Business Costs to Replacing Employees, it costs businesses about one-fifth of a worker’s salary to replace them. This fraction was determined by relevant information taken from thirty applicable case studies and eleven research papers.
Three-quarters of all workers in the United States earn less than $50,000 annually. In this report, the twenty-two case studies show a typical cost of turnover equal to 20% of their salary. The percentage remains the same across positions earning $75,000 a year or less.
Studies also show that the additional “ramp-up” costs to bring a new hire to the same competency level as the previous employee will cost between 0.5 to 1.5 times of the new person’s salary. For example, a $40,000 position would cost the business an additional $20,000 to $60,000 as the new employee becomes proficient in the job.
Based on this data, you can calculate the rough ROI of the cost of operating a Disaster and Hardship Relief Fund. For example, if your company has 20,000 employees and a Disaster and Hardship Relief Fund can reduce turnover by as few as four people annually, meaning that the fund assists four people who would otherwise be forced to leave the company, and if these employees are paid an average of $50,000 each, and the cost avoided is a minimum of 20% of their salaries, then the total costs avoided are $40,000 or greater.
The result is that your company’s cost of operating a fund, which should be substantially less than the avoided cost of employee turnover, ought to show a positive ROI.