Exercise 

Software that calculates answers to one or more of the following exercises can be found at http://hrcosting.com/hr/. 

1. UpsandDowns,Inc.,a4,000-employeeorganization,hasaseriousturnoverprob- lem, and management has decided to estimate its annual cost to the company. Following the formulas presented in Figures 4-3, 4-4, and 4-5, an HR specialist collected the following information. Exit interviews take about 45 minutes (plus 15 minutes preparation); the interviewer, an HR specialist, is paid an average of $31 per hour in wages and benefits; and, over the past year, Ups and Downs, Inc., experienced a 27 percent turnover rate. Three groups of employees were primar- ily responsible for this: blue-collar workers (40 percent), who make an average of 

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$33.20 per hour in wages and benefits; clerical employees (36 percent), who make an average of $18.50 per hour; and managers and professionals (24 percent), who make an average of $44.75 per hour. The HR department takes about 90 min- utes per terminating employee to perform the administrative functions related to terminations; on top of that, each terminating employee gets two weeks’ sever- ance pay. All this turnover also contributes to increased unemployment tax (old rate = 5.0 percent; new rate = 5.4 percent); because the average taxable wage per employee is $22.90, this is likely to be a considerable (avoidable) penalty for hav- ing a high turnover problem. 

It also costs money to replace those terminating. All pre-employment physicals are done by Biometrics, Inc., an outside organization that charges $250 per physi- cal. Advertising and employment-agency fees run an additional $550, on aver- age, per termination, and HR specialists spend an average of four more hours communicating job availability every time another employee quits. Pre-employ- ment administrative functions take another two and a half hours per terminating employee, and this excludes pre-employment interview time (one hour, on aver- age). Over the past year, Ups and Downs, Inc., records also show that, for every candidate hired, three others had to be interviewed. Testing costs per applicant are $14 for materials and another $14 for scoring. Travel expenses average $85 per applicant, and one in every ten new hires is reimbursed an average of $55,000 in moving expenses. For those management jobs being filled, a 90-minute staff meeting is also required, with a department representative (average pay and ben- efits of $37.75 per hour) present. In the past year, 17 meetings were held. Finally, post-employment acquisition and dissemination of information takes 75 minutes, on average, for each new employee. 

And of course, all these replacements have to be oriented and trained. Informa- tional literature alone costs $19 per package, and a formal orientation program run by an HR specialist takes 2.5 days (20 hours) spread over the first two months of employment. New employees make an average of $22.50 per hour in wages and benefits. After that, a formal training program (run 12 times last year) takes four 8-hour days, and trainers make an average of $46 per hour in wages and benefits. About 65 percent of all training costs can be attributed to replacements for those who left. Finally, on-the-job training lasts three 8-hour days per new employee, with two new employees assigned to each experienced employee (average pay and benefits = $36.25 per hour). During training, each experienced employee’s productivity dropped by 50 percent. Net DP was + $210,000. What did employee