When deciding how to compensate employees, many business owners instinctively go low in the name of profitability. Being penny-wise has likely helped get your company to where it is today. However, paying your employees less can easily cost you more, in the long run.
What a company saves in labor costs by offering low wages, they often pay for in high employee turnover. Replacing an employee can cost up to 33 percent of an individual’s annual salary. That’s roughly $15,000 for an employee earning a median salary of $45,000! What’s more, is that there’s no guarantee the new hire will stay.
In Hawaii’s tight labor market, it is more cost-effective to retain an existing employee than it is to recruit, onboard, and train a new one. Increasing wages is one way to keep your best workers satisfied and more importantly prevent them from jumping ship.
Here are four clear signs you should pay your employees more.
1. Your company is experiencing healthy profits
Business is booming and you’re finally generating above-average profits. That’s great! While you might reinvest that money or pay out shareholders, you should also consider sharing it with your employees—whether through a bonus, pay increase, or promotion. Sharing in the good times validates your employees’ contributions to the company’s success and ensures they stick around in the not-so-good times, too.
2. Your top employees are leaving
If you don’t pay your top employees well, another employer will. Smart employees know this. With high performers delivering 400 percent more in productivity than the average employee, losing just one of your top workers can have damaging effects on the company’s bottom line.
3. Employee morale is suffering
You know an employee’s value to your company goes far beyond how much is listed on their paycheck. But pay is almost always tied to worth in the eyes of an employee. An employee who feels underpaid will lack the motivation and drive to perform to their full potential.
4. You can’t find candidates for your open positions
Have recruitment efforts have been more sluggish than usual? Perhaps you’re not offering the right pay or salary level. With a rising minimum wage and the “Great Resignation”, attracting the right caliber of candidates in Hawaii is not easy. The promise of better pay can lure those passive (and highly desirable) job seekers from their current companies to yours.
Pinching pennies when it comes to employee pay never truly pays off. Employee turnover can eat up valuable time, resources, and money that your company needs.
This article is for informational purposes only and does not constitute legal advice. Readers should first consult their attorney, accountant or adviser before acting upon any information in this article.