A crucial management question is, what kind of employee do I want?
- Posted by Sue
- On 24th June 2022
A crucial management question is, what kind of employee do I want?
Vague answers normally given include skilled, productive, ambitious, loyal, good attitude etc. Whilst all these are good qualities to have in any employee, the truth is that, from a business point of view, there is only one type of employee you want: A PROFITABLE ONE…
Contrary to a lot of other ideas, the only sane reason to have an employee is profit…
Somehow you need to get more profit by having the employee than by not having the employee. Anybody you employ should return multiples of what they cost…
As the owner of a business, your responsibility is to maximise profit.
Remember you are the only one invested, the only one taking the risks, and probably the only one who really cares. If it were to all go belly up, your employees would simply go and get jobs somewhere else…
It is not your responsibility to provide your team with a job.
Rather, it’s their job to make themself so valuable that you can’t live without them and have to keep paying them more and more to keep them…
The only reason to have or keep your team member is profit…
Other unforgivable reasons owners have employees…
Some owners feel embarrassed by showing someone around their telephone box-sized building with just one employee, no matter the huge amounts of money dropping down to the bottom line…
They would sooner show them around their huge plush property with lots of people working on the latest Apple computers whilst sitting in Herman Miller chairs, sipping their latte coffee from the flashiest, most expensive coffee machine…
Some have problems making decisions and feel the need to surround themselves with people who are paid to agree with them…
They would be better off getting a dog. A dog will cost less and be a true friend.
A thought on the level of wage rates…
It does not matter who does the job or how long they have been doing the job, packing red widgets into boxes is only worth £4.15 per hour, no more…
Low-wage jobs are not meant to be a career choice, they are entry level jobs, a place to start, not a place to stay.
Many people do not understand this and that the responsibility for making a decent living wage is with the individual and to do that they need to move up the skills and behavioural ladder…
Never feel guilty because of the amount of money you’re making as a business owner because every employee chooses their income by their behaviour…
Another key point here is that the last person to ever get a pay cut is you, the owner because you have 100% risk…
Furthermore, you want to use the majority of the money available for wages to attract the top talent possible for your most important jobs and, to reward exceptional performance…
To be able to do that you need to be a scrooge about paying people who provide only ordinary, barely profitable performance…
A reframe on what an employee is really is…
Fundamentally an employee is a rented asset…
An employee has a monthly payment to be made on them just like a piece of equipment…
So, if you are renting a piece of equipment for £1500 per month and it continually breaks down, produces a substandard product, and doesn’t produce the promised output, what would you do❓
Return it or refuse to pay for it 🤔
If you’re paying £1500 per month it had better be producing at least 3X’s that amount to pay for itself…
Every piece of equipment, that is every employee, must pay off at a multiple of their cost…
And that leads us nicely into employee cost and few business owners understand or consider the factors leading to the true cost…
Most management books recommend that the cost of an employee is wages + taxes + benefits + fixed costs. So, if an employee is paid say £15 per hour, tax, national security, bonus payments, let’s add 30% so we’re now at £19.50…
Then we can add on the health care plan, pensions contributions, Christmas bonus etc. Let’s say that adds up to another £1.00 per hour.
Then we need to think about the business fixed costs because employees use stuff; soap, toilet paper, heating, and sometimes air conditioning, they take up space that has to be paid for, and this, might push a button for some of you, but a few steal from you, even if it’s just pens, paper, paper clips, etc., but it all adds up and you have to pay for it…
So, for instance if you as an employer are paying £1000 per month for rent, utilities and supplies, and have 4 employees that’s £250 per employee divided by 160 work hours, that’s an extra £1.56 per hour. We’re now up to £22.06…
But we’re just getting started…
A real big number in a lot of businesses and one that’s difficult to quantify is rework…
As a result of a mistake, some customers will leave and need to be replaced and not only do you lose their sales, you now have to spend on marketing to attract a customer to replace the lost one.
In this day and age, mistakes can be even more costly…
This survey however was before the internet. Now when someone has a complaint, they tell everyone. And just one of the reasons why it’s really difficult to quantify mistakes…
When an employee makes mistakes, and they will -they are human, in most cases, there are no consequences for them…
However, you, as the business owner, bear 100% of the costs of the mistake…
Even something as innocent and simple as an employee taking another sip of their coffee before answering that phone can result in an irate customer, because, as expected, the phone wasn’t answered before the third ring. These little seemingly inconsequential indiscretions have a cost to the business and, ultimately, to you the owner…
Let’s just say that our hypothetical employee costs £200 per week from mistakes and waste. Divide by 40 hrs and you get to add another £5 to the cost and our £15 per hour member of staff is now costing £27.06…
Then there’s the cost of your time. You get disturbed continually, “Have you got a minute boss?” and those disturbances rarely last a minute and really do add up. Plus, you have to recruit, train, coach, police, counsel (listen all about their marriage break ups etc.) conflict manage and sometimes sack employees…
So, let’s be really conservative here and give this just 2 hours per week. Now if you are making a £100k as the boss of the business (and why shouldn’t you?) and if we divide that by 2000 hrs a year, your hourly rate is £50. That is a cost of £100 of your time each week. Divide that by 40 hrs, the employee cost to on your time equals £2.50…
Your £15 per hour employee is not costing £29.56…
We then have to take into account absence…
During the recent lockdown, I’ve been amazed at the terminology, that only essential staff should be working. For me that begs the question, why would anybody employ non-essential workers❓
And the fact that any business somehow manages to function when a staff member is on holiday or phones in sick casts doubt over whether that employee is essential to the smooth running of the business…
But if they are essential and absent, you will have to pay to have their roles and responsibilities covered.
This normally entails a higher-paid member of the team picking up some of their tasks, which is another cost because now other higher-paid members of your team are now not as productive as they can be…
It can also mean that you’re pulled back into the day-to-day ‘doing’ in the business…
If we allow 20 days for the average employee having time off during the year (this includes holidays, personal problems, and sick days), plus take into account that every now and then the employee might quit and now you incur recruitment and training costs…
Again, let’s be conservative and estimate this to add up to 20 days of your time at £50 per hour which equals £8000 per year divided by 2000 hours equals another £4…
Your £15 per hour employee is now costing you the grand total of £33.56 per hour or £67,120 per year!
As you can see, getting recruitment right is essential for your business and for your sanity!
It has to be taken seriously…
Next time you are going to recruit someone, consider this: are you giving the decision the thinking time needed to make a £15 per hour decision or a £67,000 decision❓
And, just as importantly, what profit does that member of staff need to produce for you to get a good ROI❓
Give this the time it truly deserves, you’ll thank me later…
If you’d like to discuss this or of the other topics I cover in my newsletter book yourself a call…I’m here to help
https://calendly.com/susangallagher/15-minute-call
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