Many small-business owners are concerned about the changes to the overtime rules that come into effect this December. Currently, employees who make an annual salary of less than $23,600 are eligible to be paid overtime if they work more than 40 hours a week. Beginning in December, the annual salary threshold increases to $47,476 — impacting the earnings of upward of 90,000 additional employees in Arizona.
Small-business owners are understandably concerned about the additional cost’s impact on their bottom line. However, they don’t realize how paying employees well can help to improve their profitability.
According to the Economic Policy Institute Family Budget Calculator, the annual income needed to attain a modest yet adequate standard of living in Phoenix for a family of one adult and one child is approximately $48,000. If a single parent is struggling to make ends meet, their attitude and motivation will be negatively impacted. This will inevitably affect how they interact with others (e.g., co-workers and customers), which, in turn, affects the profits of the company.
Employee Attitude
Imagine working 50-plus hours a week and earning $30,000. By the time you get home from work, you have little time to spend with your family. You’re tired and stressed about money. The gratitude you initially had for being hired quickly slips into bitterness for having to work so many hours for so little pay. This affects your attitude, which ripples into how you deal with others. Your attitude could ultimately get your fired or lead to co-workings looking for a new place to work.
The cost of employee turnover is real — and significant. It can run anywhere from 50–150 percent of the employee’s salary. This includes hard costs like advertising and recruiting and training time, as well as intangible costs such as the impact on the staff morale and productivity.
The cost of hiring a replacement
for an employee earning $30,000
could be at least $15,000.
Employee Motivation
If you were asked to work excessive hours for low pay, would you feel motivated to do great work? Would you feel proud to be an employee or be excited to make the company look good to their customers? I probably wouldn’t. I would probably be looking at the clock a lot, waiting for the day to end, thinking about all the personal things not getting done, and counting down to my next paycheck. (I hope this isn’t making you think of certain employees!)
The motivation levels of employees are real costs to a company. Unmotivated people put in about 50–75 percent of the effort that happy and motivated people do — therefore, it will take more man-hours to get the work done.
Low motivation of an employee being
paid $30,000 could cost at least $15,000
of lost labor productivity.
Customer Satisfaction
Have you ever dealt with a company’s employee who was obviously unhappy at work? I think we all have. It can be a frustrating and sometimes unbearable experience. It’s an experience that makes you think twice about doing business with the company again and guarantees you won’t refer them to others. This directly impacts the growth of the company.
I have not been able to find data on what percentage of customers are lost due to poor customer experience. However, research shows that it costs six times more to generate new business through regular marketing initiatives than through referrals. Small-business pays, on average, $500 to $3,000 per month in marketing. Revenue growth through referrals would reduce marketing costs significantly.
Annual savings on marketing
could be as much as $30,000 per year
through referral business growth.
When considering what to pay employees, business owners need to look at all the factors that may impact their profits. It’s time to look beyond the numbers of the salary payments and look at all the other factors that come into play when people are paid poorly. It has been proved that the benefits which come from good salaries far, far outweigh the expense. This is a fact that you only learn in the school of hard knocks!
Cindy Gordon is the founder of Business Rescue Coaching, a coaching service boutique that provides a unique experience to small-business owners who feel they are not in control of their business. Cindy helps to build strong systems, processes and strategies that lead to higher profits, more cash in the bank and more autonomous employees. Her clients feel less stress while achieving more success. Contact Cindy at (602) 423-7670 or via email.
