ROI of Employee Engagement: why you should invest now
How to measure the ROI of Employee Engagement
Investing the employee engagement is a worthy exercise. However, for it to get on the priority list with the top management, you must prove that it actually pays back. Measuring the ROI simply looks at the impact that the employee turnover, productivity and absenteeism have on your bottom line. By doing this, you can quantify how much a fully engaged workforce can deliver to the organization.
Data needed in calculating employee engagement ROI
When calculating the impact of engaging employees, a number of items in hard figures must be availed. These include,
- The number of employees you had at the start of the year
- The number of employees you had at the close of the period
- The number of employees that left the company within the year
- The average salary for your employees
- The annual revenue for the business
There are several free and paid employee engagement ROI calculators on the internet that you can use to get the aspects of the engagement as explained below.
Revenue per employee
This seeks to know how much each employee makes for the company if working for the whole year with few or no absenteeism cases. The calculation also seeks to know how efficient the company is at utilizing the employee capabilities. This is calculated by measuring the average annual revenue by the number of employees at the workplace.
Costs of absenteeism
Every time that the worker is not at his desk on unearned paid time off, some revenue is lost. The accepted unearned paid time off is about three days a year or about 1.2 percent of the working days.
To determine the cost of absenteeism per employee, determine the average percentage of the total working days that the employee is absent. Then, take the percentage of the annual revenue and the average annual employee salary. Add the two. The total is the amount of money you lose when the employee is unearned paid leave.
The rate of employee turnover
This is a calculation meant to determine the percentage of employees that leave the organization within a given year. You determine it by dividing the number of the employees that quit the company with the total number of employees within the year. You can then compare this percentage with the industry average turnover rate.
The cost of replacing an employee that quit
The Society for Human Resource management alleges that every time an employee is replaced, the company will use six to nine months of the replaced employees’ salary to get the new employee acquainted with what is expected of him or her. The cost may be more if other factors such as lost productivity, onboarding costs, lost engagement, and the cost of training.
The total cost of employee turnover can be determined by multiplying the average cost of the employee replacement with the number of the employees that quit the company within the year.
Determining the employee engagement ROI
The employee engagement ROI is the totals of
- The amount of revenue that add up to your annual revenue due to the increase in the employee productivity,
- Amount saved due to reduction in absenteeism and
- Money saved due to a decrease in turnover.
If you enhance the employee health at the workplace, there are chances that the number of sick leaves will go down. On the other hand, if you enhance the wellbeing of your employees, you may experience higher employee retention. The other factor that influences the engagement rates is the workplace environment. Ensure that the employees are happy at work and they will not find a reason to leave the company.
The employee experience also affects their productivity. If the elements of light, noise, and comfort are in place, the employees will produce more. You may also come up with wellness initiatives that include team building, having an on-site gym, encouraging healthy habits such as walking and taking lots of water, rewarding healthy behaviors and so forth to enhance wellness at work. If this is combined with motivation, reasonable pay and favorable work policies, the employees will embrace the employer brand and hit the ground running.
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