I spend a lot of times presenting to veterinary groups on business management. The one area that attracts the most interest is Human Resources. Usually vets engage in the subject because it is something that they hate to deal with. I think some of the concerns with it are that dealing with people is hard and we spend so much of our time dealing with clients and their needs that we become too mentally and emotionally fatigued to deal with our staff. I also think that they don’t think of it as something that can benefit from the same kind of attention we would pay to other expenses, like inventory control. That is an area of a business that has measurements that we can respond too. If the price of a medication goes up, we can raise our prices to our clients, or if we pay a supplier’s invoice early we can get a discount. It’s pretty straightforward.
I like to play a little trick when I’m presenting to these veterinary groups on Human Resources to give business owners a sense of importance and even urgency to the subject. I like to ask the group of vets how many spend more than 4 hours a week thinking or managing HR. Less than 10% will raise their hands. I then ask who spends 2 hours, 1 hours, no time at all with more and more hands going up. The majority raise their hands at 1 hour per week or not at all. Then I ask them to tell me what their biggest business expense is, and then I see the looks of dismay slowly spread across their faces as they realize that the biggest expense in their business is the one area of the practice that they barely spend any time thinking about.
Most of us think of our payroll expenses as something that we have little control over. People come and go every year, but as a percentage of revenue what we pay as compensation stays fairly stable every year. After a while we think of it as constant expense that we can’t seem to lower too much because if we cut staff, or vets to save money the remaining staff will be overworked and unhappy and that will cause a lot of grief and who needs that.
The next thing I like to ask the group of veterinarians about HR is what the cost is of replacing unhappy staff who quit, or those you have to let go because of poor performance, or they just didn’t fit into the practice culture. One Human Resource consultant looked at several research papers and figured out that the cost to replace an employee is 50-75% of their annual salary!! The more specialized their training the higher this rate will be. Imagine the cost to your business when you are paying 75% of a vet’s salary when you replace them!! It doesn’t take long to add up the various costs of a lost employee If you step back and think of what is involved when replacing them: training, decreased productivity, lost institutional notice, time spent interviewing candidates, etc.
How much do you think employee turnover is costing your business? The simple way is to look at how many employees left for another job, or you let go for whatever reason over a year and then determine where they would lie on the scale of training complexity and apply a percentage of their salaries. Even if you just one person had to be replaced it is too expensive.
You might also want to determine your employee turnover rate on an annual basis to see how you are doing each year in this area. This is a simple equation that gives you a percentage of employees you had to replace over the year. It is the number of employees that were replaced divided by the average number of employees you have in a year multiplied by 100 to give you a percentage. You would not include those who left because of pregnancy, illness or were summer students. These are either beyond your control, or their duration of employment was known to be short term. There isn’t an industry standard of this metric, so it is something you should use to measure your own business. It is easy enough to look at your payroll records over the past few years to see if your employee turnover rate is consistent or if there a trend. Either way it is good to know how you have been performing so you can measure what actions you take in response to your score.
Making sure we have hire the right employees and creating a work environment that makes these excellent employees want to stay with your business is an ongoing process. The expense of employee turnover should encourage your business to review your Human Resource systems to make sure it is not an inadvertent cash drain, rather your policies and procedures are supporting your most expensive resources, your people.
Originally published in Canadian Vet Magazine