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Underperforming employees cost UK SMEs £39,500 every year

Nine in ten small businesses report new hires need more support than initially anticipated

British SMEs are bearing the brunt of the skills crisis, with underperforming employees costing each firm £39,500 a year on average.

Consisting of salary costs and lost growth, SMEs are losing substantial amounts of profit due to poor hires. This is a crisis for the UK economy: with small businesses making up 99.3% of the country’s firms, their problem is the nation’s problem.

This is the key finding of new research into the skills challenges faced by UK SMEs during a time of record employment conducted by, growth consultancy, The Sunflower Group.

Hiring a new team member is a significant investment for any small firm. However, businesses are quickly finding the employees they invest money and aspirations in, need much more help than originally anticipated.

Nine in ten (89%) small and medium size businesses owners report new staff need more supervision and training than initially planned for. This means owners spend valuable time supervising employees, instead of focusing on growing the business, often what a new hire was supposed to enable them to do.

Inability to hire skilled employees

The cost of underperforming staff is exacerbated by SMEs’ struggle to hire employees with the right skills in the first place. Four in five (79%) owners report it being difficult to attract workers with the skills they need. Worse: almost a third (31%) say it is very hard to do so.

A critical reason for this is lack of funding: a fifth of all SME owners’ report they cannot afford to pay market salaries. The issue is exacerbated by would-be employees seeking jobs at more well-known firms. Four in ten (39%) SMEs cite their lack of brand power a reason for not being able to recruit.

Indicating the wider technical skills gap in the UK, production and operations is the business function most desperately lacking staff. Over a quarter (28%) report it to be the one they struggle to hire for most. Sales (14%), finance (13%) and marketing (13%) make up other functions.

Amanda Webb, Managing Director at The Sunflower Group said: “To combat the skills gap, and get the resources to grow, small firms need to be savvy about hiring. Rapidly growing businesses should hire as soon as they find a good candidate. Don’t wait for a vacancy to become available: good people will always add value.”

The Sunflower Group Technical Director, David Callé, said: “There’s a large expectation vs reality gap when SMEs hire new staff. The aspiration of finding someone to help grow your business, with the same ambitions and capabilities is often impossible to fulfil. Owners need to specific and realistic in their hiring processes. Setting specific objectives for a new hire is a critical first step.

If available candidates will not be able to do these, take a wider look at how they could be fulfilled. For example, would improving processes and systems have the same boost to productivity? Or would external consultancy be more valuable?”

Methodology

The Sunflower Group commissioned survey experts Censuswide to speak to 250 SME owners. The research was conducted in late September 2018.