Avoid expensive employee turnover by improving your hiring practice
As a small business owner, you may not have a human resource department to guide you through the best recruitment, hiring, and retention practices. The process of recruiting for the same position comes with a significant cost attached to it. This blog will discuss steps to improve your hiring practices as a business owner. Avoid expensive employee turnover by improving your hiring process thru these steps below.
Human Capital is the Greatest Asset.
It does not matter what industry you are doing business in, retaining human capital is the most valuable asset in an organization. Employees are either interacting with customers directly or indirectly when creating products. Therefore, hiring the best candidate is the first step to avoiding the expensive costs that come with employee turnover.
Employee turnover can get expensive
During the replacement process of an employee, a business loses time and a tremendous amount of money. The Society for Human Resource Management (SHRM) reported that “on average, it costs a company six to nine months of an employee’s salary to replace [them]. Let’s consider an employee making $60,000 annually; replacement fees come to $30,000 – $45,000 in recruiting and training costs.”
You may have many reasons to let go of an employee or for them to quit. Still, hiring the right person aligned with your company’s culture and values is the most important thing you can do as an employer to avoid attrition.
Hire and build a diverse team
You should aim to attract a diverse talent of individuals. Companies that have diverse teams are proven to be more successful at making better decisions as everyone has different problem-solving skills and resources. If you build a diverse team, you will also be able to connect with different types of customers. Diversity is the way to go when building a successful organization!
Step 1: Culture, Culture, Culture (and Values)
Of course, you want to make your culture attractive to recruit the best of the best. But you also need to hire people who will be a great cultural fit for the company. Determine the motivation for each prospective employee and see if it aligns with the company’s values (E.g., Here at ABC company, we want people who want to grow and learn).
Step 2: Hire for personality, train for skill
The most successful companies understand that you can’t change personality (a soft or “power” skill). They are forgiving about not having “hard” skills because they realize most people can quickly learn these skills with the proper training. Southwest Airlines coined the term “hire for personality, train for skill” and has done just that for years (Baker, 2014). Trader Joe’s is known to hire for “personality, specifically extroversion” (Ager & Roberto, 2014). Both these companies see that retaining employees with a great culture and training is cheaper in the long run than hiring people who later leave or get terminated. Attracting the “right” people is paramount.
Step 3: Cross your T’s and Dot your I’s
Do good work at both the attracting and deciding phases. Do not skip any of these steps just because you like a candidate.
- Ask questions about competencies/knowledge, skills, and abilities (KSAs) needed to succeed in the specific position.
- Ask questions about a prospective employee’s personality, vision, mission, values, and culture.
- Ask, “Why this specific company?” This question will immediately let you know if they’ve done their research.
- Ask, “why remote/hybrid/in office?
- Ask, “Why this specific industry?”
- Ask both behavioral and situational questions. “Behavioral… focuses on a candidate’s past experiences, behaviors, knowledge, skills, and abilities by asking the candidate to provide specific examples of when they have demonstrated certain behaviors or skills to predict future behavior and performance. Situational questions give the interviewee a hypothetical scenario and focus on a candidate’s past experiences, behaviors, knowledge, skills, and abilities by asking the candidate to provide specific examples of how the candidate would respond given the situation described.” (SHRM, 2022).
- Ask for completion of a valid personality test such as the Caliper.
- Ask for consent to a background check (criminal, civil, degree confirmation, license confirmation, etc.)
- Ask for three professional references and call all of them even if they provide a letter of recommendation. Some people will tell you things verbally they would never write in a letter.
- Offer a limited window to sign an offer letter and employee agreements but offer support and be available/approachable for questions and negotiations. This creates a sense of urgency and lets you snag that desirable candidate.
Step 4: Create a hiring matrix
This technique has come very usefully for the Startup Tandem team. This matrix should have the following factors:
- Decision criteria can be such as ‘professionalism, skillset’ in certain area etc.
- Weight assigned to each criterion ex: 25%,50%
- Rating per criteria ex: 5,4,3
- multiply weight and rating to get the score per criteria
- Comments per interviewer
Be sure to file a new hire report in your state. This determines if the new employee owes money to the government (e.g. child support). If they do owe money, the court or government agencies will mail you information on how much to deduct from their paychecks so your employee can pay back their debt. In California, for example, if the employee will be paid over $600, the form needs to be filed within 20 days via Form W-4 (form will vary by state) or you will face late penalties.
As they change, follow all state and federal anti-discrimination laws every time you hire an employee. For example, “California law protects individuals from illegal discrimination by employers based on the following: Race, color. Ancestry, national origin. Religion, creed.” CA Civil Rights Dept.
Report all employees’ data annually to the Equal Employment Opportunity Commission (EEOC). This is not something you do upon hire, but rather by the annual deadline. You will find the reporting dates on our Startup Tandem HR Compliance Calendar. The last one was May 17, 2022, but they often get extended.
What to do next?
As a founder, CEO, and owner of your own company, you should allocate time to developing a correct hiring process that is aligned with the values of your company. developing these processes will avoid expensive turnover. There are compliance policies that you should keep in mind when hiring, which can become challenging to navigate. A partner like Startup Tandem can help you set up such processes and build a budget for retaining valuable human capital.
How Can Startup Tandem HR Help?
If you follow these simple steps, you can hire the right person who will strengthen your culture for years to come. Although it may take more time and energy than your current hiring process, this is an opportunity to cut those tremendous turnover costs. Ideally, you will lose very few employees over the years.
Startup Tandem provides human resources consulting services to help you navigate issues like this and:
- Best Hiring Practices
- Writing company policies and procedures
- Creating an employee manual
- Creating a termination checklist
- Assessing employee’s leadership style
- Assessing employees conflict management style
- Improving team dynamic
- Stay compliant with each state where you have employees
- Setting up Retirement and health plans for employees
Startup Tandem HR consulting is led by a phycologist that can help you create the questions and tests to hire the rightest candidate for your company’s culture.
How can Startup Tandem CFO help?
Startup Tandem CFO can help you create a budget that includes expenses such as software to run a background check, personality, conflict management, and leadership tests. Your budget should also include training and retaining human capital. Following hiring the best people for your company comes retaining your employees. We should also help you track your actual versus your forecasted expenses in the budget to stay on top of your cash flow.
Now that we discussed how to avoid expensive employee turnover by improving your hiring process, you can learn how employees like to feel appreciated by their boss. Everyone has a different way of feeling appreciated by their boss. Our blog Unique Ways to Optimize Retention, Engagement, Productivity – Startup Tandem, will give you some insight on how to increase retention. More on this topic soon! Sign up for our newsletter to receive blogs directly to your email.
Ager, D. & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School Publishing.
Baker, W. (2014). Southwest Airlines’ Nonstop Culture: Flying High With Transparency and Empowerment. HBS No. W94C04. Boston, MA: Harvard Business School Publishing.
Lynchburg Regional SHRM. (2017). Essential Elements of Employee Retention. https://lrshrm.shrm.org/blog/2017/10/essential-elements-employee-retention
SHRM. (2022). Job Interview Questions. https://www.shrm.org/resourcesandtools/tools-and-samples/interview-questions/pages/default.aspx