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The True Financial Cost of Poor Productivity

There are a lot of variables to take into account when calculating average employee expenses. From taxes to medical, the cost of an employee can quickly siphon money away from an already hurting business. 

When workplace productivity is down, employees are taking time and even more money away from your company—this is called time theft, and it is a very serious issue in the United States. 

According to a 2013 Gallup report, unhappy workers cost the U.S. $450 to $550 billion annually to lost productivity. These numbers report that 70% of employees are disengaged at work, with 80% disengaged as a result of a poor manager. 

These numbers suggest that companies, overall, should be considering company culture and tracking for productivity. There is a financial cost to reduced productivity and it is most likely eating away at your bottom line. 

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To properly discuss this financial picture, let’s first look at the financial cost of an employee:

Calculating the Financial Cost of an Employee

As you know, hiring a salaried employee means a lot more than merely agreeing to a bi-weekly paycheck and an annual salary. 

For salaried employees, companies must also pay additional labor costs, such as social security-related expenses and employment taxes and benefits (i.e., health insurance and a 401 or 401k). 

Calculating these expenses can be based on several formulas, including the Hadzima formula, which tabulates 1.25 to 1.4 times of a base salary, and Jose Pagliery’s calculations, which adds 14% to 26% more to a base salary. 

So, for example, when considering Joe Hadzima’s formula, an employee with a base salary of $30,000 will cost you somewhere between $37,500 to $42,000 after the basic salary, taxes, and benefits are added up. Comparatively, Joe Pagliery figures that an employee with a base salary of $30,000 will cost the company anywhere between $36,585 and $40,541.

Understandably, these numbers can vary and range depending on the size of the company, the company’s history, the state(s) that the company pays taxes in, the amount of training that a new employee needs, and changes in elections and federal laws, among others. 

Of course, some companies avoid these costs altogether, and simply hire self-employed folk as contract workers or freelance workers. While less stable, hiring self-employed individuals can save a company thousands of dollars and support small business growth. 

What to Expect Around Employee Productivity and Employee Performance

When you are hiring an individual to do full-time work, you expect them to work at least 40 hours a week. But as management, we know that these 40 hours are often a little thin. To make matters worse, it is impossible to tell whether or not your employees are actually hitting this 40-hour mark if your company is not doing time tracking. 

When measuring worker productivity, it’s best to look at the hard numbers. Here are some stats that your company should know around employee productivity:

  • Organizations with engaged employees outperform companies without engaged employees by 202%. 
  • Customer retention rates are higher for companies with highly engaged employees (18%).
  • Disengaged workers have higher absenteeism (37%), more accidents (49%), and more errors (60%).
  • Just over half (53%) or workers only give the minimum effort and will leave the company for a better offer.
  • In 2015, the APA suggested that $500 billion is lost annually due to workplace stress
  • Companies with higher employee engagement scores see 17% more productivity and a lower employee turnover rate. 
  • Companies with a lot of work pressures have 50% higher health care costs than other companies.

Based on these numbers, it is easy to see how being able to track, measure, and improve productivity can lead to significantly happier employees, more productivity, and better overall company performance. 

On top of all that, improving productivity will improve your company’s bottom line. According to IBM, organizations in the top 25% in terms of positive employee experience received almost three times more the return on assets and double the return on sales compared to those who were in the bottom 25%. 

Simply put, individual productivity is crucial to the success of any business, so it is vital to work on improving workplace morale and company culture.

Presenteeism: Ways to Improve Workplace Productivity

When a company has low morale or poor employee satisfaction, employees are not as likely to stick with the company simply because the atmosphere isn’t conducive to their mental health, or it isn’t a place they enjoy being! 

With low morale, you’ll expect to find a high employee turnover, impaired performance, a lower employee engagement level, and reduced productivity. 

Additionally, lazy or disengaged employees can lead to data breaches. A lazy or disengaged employee is more prone to errors. The error can be something as simple as not locking the computer when walking away for a scheduled break. Negligent employees can be subject to a malicious cyberattack and, in turn, cost your company a lot of money

Here are some things to focus on to reduce presenteeism and improve employee productivity:

  • Focus on employee strengths: Employees who can practice their strengths daily are 8% more productive than those who do not get to do what they are good at. This means they are 6x more engaged than other employees. By not focusing on your employees’ strengths, you might experience a significant productivity loss. 
  • Decrease stress and work overload: It is clear that overloaded employees and very stressed employees showed lower productivity levels overall. 57% of employees who felt very stressed said they worked less, were not as productive and were disengaged, compared to 10% of employees who felt low stress. Similarly, 68% of overloaded employees felt they didn’t have enough time in the day to complete their required tasks. Decreasing stress will not only improve productivity, but it will also improve the mental health of those that work for you. 
  • Recognize health as an indirect cost: While an employer might consider their employees to be worker bees, more and more people are starting to recognize that employee health should be prioritized. Are there unacknowledged health risks when working with your company? Perhaps focus on employee wellness programs and employee well-being. 

Once employee morale is improved, companies can then refocus their energies on improved workforce productivity. After all, employees might be so far in a funk that they are unaware of poor time management. With a culture of negativity or a lack of engagement, even the most diligent employees will succumb to a workplace distraction. 

The Financial Cost of Poor Employee Productivity

If you have an employee who is 50% engaged, we can consider that at least 50% of their salary is not being earned in full. These employees might encourage other employees to slack off as well. 

Disengaged workers are likely to be absent almost 40% of the time, have an accident nearly half of the time, and contribute to errors nearly 60% of the time! 

Suppose you are paying an annual salary of $30,000. In that case, a poorly productive employee might be wasting anywhere from $10,000 to $15,000 of that salary on disengagement, absenteeism, and contributing to a negative environment. 

Added on top of this is the cost of employee taxes. An employee who is paid $30,000 a year might actually cost $40,000 to $42,000 a year. This means the employee might be costing you an additional amount of $20,000 to $27,000 per year and not providing the proper returns!  

This number is not even accounting for the errors that the employee makes, the trickle-down engagement of other employees, and the health hazards that they may incur. Nor is this taking into account unemployed insurance rates that may go up with higher employee turnover rates. 

These numbers indicate that poor employee productivity might be costing your company thousands. By improving your employee productivity, you might move your company out of financial stress and into the green. But how does this happen?

Improve Company Culture and Employee Productivity With SoftActivity

The statistics suggest that a poor company culture may be the result of disengaged employees, reduced productivity, and high turnover rates. But productivity gains can be achieved with improving employee satisfaction and productivity growth that is measured through time tracking software. 

If an employee is not emotionally invested positively and does not see that their hard work will pay off financially (the financial success of the company reflected in the employees’ finances), then they will mostly remain disengaged and minimally productive. 

On the flip side, employees might not recognize all the money that goes into retaining them at that particular company. While it is not necessary for the business to provide a full financial picture to the employee, it is necessary to give them a reason to work hard in their position. 
Without a time tracker to manage time spent on individual tasks or projects, your employees and project managers have no way of measuring productivity successes or failures. A time tracking system, such as employee time tracking software, can give your company hard data for employee productivity measurement so you can work together to improve productivity rates.

September 10th, 2020