ACA is here to stay, and employers, large and small, are assessing their workforce composition and the obligations or penalties which will kick in next year. Businesses which are deemed to be small employers under the regulations are breathing a sigh of relief that the burdensome requirements of the new legislation do not apply to them. Large employers, those employing 50 or more FTEs as defined by the law, are deciding whether to “play or pay”, meaning to offer health insurance or pay an IRS penalty for not doing so. Whether an employer is exempt from the requirement or calculates that the penalty is less expensive than paying health insurance premiums, the consequences of not offering health insurance can hit the bottom line hard.
Unfortunately, the sensibility of offering health insurance is escaping many employers. The 2013 Aflac Workforce Report examined issues impacting employee benefits. As shown by the results below, a gap exists between employer and employee perceptions of the importance of benefits.
Employers believe benefits are extremely or very influential on: |
Employees believe benefits are extremely or very influential on: |
Job satisfaction – 56% |
Job satisfaction – 79% |
Loyalty to employer – 50% |
Loyalty to employer – 66% |
Willingness to refer friends – 39% |
Willingness to refer a friend – 54% |
Work productivity – 32% |
Work productivity – 62% |
Decision to leave company — 34% |
Decision to leave company – 55% |
Read the full study at
http://www.aflac.com/aflac_workforces_report/workforce_study_results.aspx.
Employers who fail to recognize the value that employees place on benefits put their business at a disadvantage for talent attraction and retention. Losing an employee who defects to a competitor for a more attractive benefit package creates costs which are no less important or real than the costs associated with paying vendors for goods or services. These are very real costs to the employer, but rarely are they measured because no process is in place to tabulate the costs; such costs are not reported to top management; and many employers view turnover as an inescapable cost of doing business.
Numerous sources provide estimates of the cost to replace an employee. The range is anywhere from $2,000 to $7,000 for an $8.00 per hour employee, or 30-50% of the annual salary of an entry level employee. For middle level employees the replacement cost is estimated at 150%, and for specialized, high level employees or management the cost can be as high as 400% of their annual salary. Consider the direct and indirect costs of hiring a new employee:
Terminating the Departing Employee
Processing a terminated employee includes:
- · Conducting an exit interview, stopping payroll, and revoking passwords and other security privileges
- · Processing the various forms needed to terminate an employee and updating personnel records
- · Communicating the termination to the existing staff
Recruiting a Replacement Employee
Finding a replacement for the terminated employee requires:
- · The internal or external recruiter’s time to understand the open position requirements and the desired qualifications
- · Placing and paying for advertisements and job postings for the open position or incurring outsourcing costs for a search firm
- · Conducting interviews, discussing assessments and selecting a finalist. Keep mind the multiples associated with this process as generally there are several candidates for a position.
- · Incurring costs of educational, credit, criminal background, and other reference checks
Managing the Vacant Position
The time between the employee’s resignation notice and hiring of a replacement places additional burden on supervisors and staff which includes:
- · Identifying and assessing the status of incomplete or pending work
- · Re-assigning work to other employees, shifting the responsibility to supervisory personnel or hiring a temporary employee. It may also be necessary to explain and review work assignments more carefully if the work has been assigned to someone who normally does not do it.
- · Following up with customers to communicate change in personnel
- · Assessing the impact on potential loss in sales, production delays or new product introductions
Orientation and Training of the New Employee
Once a new employee is hired, onboarding and training are required to:
- · Add the new person to payroll, establish computer and security passwords, and issue identification cards
- · Establish an email account, telephone extension, and credit card accounts
- · Assign equipment such as a desktop, laptop, cell phone, or automobile
- · Train the employee on duties, expectations and responsibilities
- · Integrate the employee into the right team of peers
- · Introduce the employee to the organization and customers
Impact on Customer Relationships
When a knowledgeable employee leaves, taking experience and customer service ability with him or her, customer relationships can suffer if:
- · The employee takes the customer with him or her to the new employer
- · Customer commitments are not met after the employee leaves because of the intimate knowledge the employee had of a transaction or arrangement
- · Customers become frustrated or annoyed dealing with trainees
Replacing key personnel, such as those with highly technical or industry knowledge or management experience, magnify many of the costs described above. And the longer a specialized or management position is vacant, the potential harm to a business grows.
In light of the cost to replace an employee, is it a wise decision to not offer health insurance? It hardly seems so when the actual costs to replace an employee can easily exceed the employer’s share of health insurance premiums. And if administration costs of a group health plan are a concern, they will only be substituted by the administration of terminating and hiring replacements. Failing to offer health insurance will not only cause employees to seek benefits elsewhere, but will also place a company at a competitive disadvantage in attracting new talent. The best and brightest will find the employers with the most attractive benefit package, leaving those who do not with a mediocre workforce.
The complexity of the new healthcare requirements can be overwhelming, especially for an organization which does not have the resources in-house to deal with them. But working with the right team of experts can assist a business in developing a strategy for managing costs and attracting and retaining the talent needed to support growth and long term viability. A knowledgeable insurance broker and a healthcare reform consultant can help develop a workforce structure and benefits package to ensure a business has the human capital to meet its goals.
Learn more about C3 Advisors, LLC at www.c3adviors.com. Find us on Facebook and LinkedIn. Subscribe to our newsletter by emailing debd@c3advisors.com.