In our previous blog, we raised an important question: Are SME’s Getting the Full Value Out of Their Employees and Why They Should Care? The financial cost of underutilisation is real, but often invisible. What’s needed is a shift from instinct to insight, from gut feel to numbers.
This post shows you exactly how to calculate what underutilisation might be costing your business, starting with simple checks and progressing to more advanced calculations.
Why This Matters
According to research, underutilisation not only kills morale but also drains productivity and profitability. A disengaged employee can cost a company up to 34% of their annual salary in lost output (Gallup, 2020). In SMEs, where every hire counts, the risk is multiplied.
First Line of Action: A Quick Checklist
Use this 9-point checklist quarterly to flag red flags before they become costly.
- Employee Turnover Rate – Losing a trained employee is expensive – between 30% and 200% of their annual salary, depending on their role. High turnover often signals underutilisation: when employees don’t feel challenged or valued, they leave. Measure it regularly to catch early warning signs.
▢ Are you losing talent due to lack of growth or challenge? - Absenteeism Rate – Employees who aren’t engaged tend to check out – literally. Chronic absenteeism not only disrupts workflows but also drains productivity. High rates could point to a deeper issue of disengagement tied to underutilization
▢ Are frequent absences tied to low morale or poor engagement? - Overtime Costs – If certain employees are racking up overtime while others have bandwidth to spare, your workforce is out of balance. Excessive overtime can signal inefficient resource allocation, burnout risk, and underused skills elsewhere on the team.
▢ Are some employees overloaded while others are underused? - Training Investment per Employee – Are you equipping your team to grow. If training spend is low and performance is stagnant, it may be time to rethink how you’re enabling your people to stretch into their full potential.
▢ Are you investing in people’s growth—or just hiring new ones? - Internal Mobility Rate – Career stagnation is a major contributor to underutilisation. Track how often employees move into new roles or take on stretch assignments. A low internal mobility rate may reflect missed opportunities to unlock potential from within.
▢ Are employees moving into new roles or projects internally? - Revenue per Employee – This is the ultimate productivity metric. If your revenue per employee is dropping while headcount remains steady or grows, it’s a red flag that people aren’t being used efficiently.
▢ Is this figure increasing, flatlining, or declining? - Cost per Hire – A high cost per hire, coupled with low retention or poor performance, may suggest that you’re constantly plugging gaps instead of developing existing talent. This leads to a costly cycle of hiring rather than upskilling.
▢ Are you spending more on new hires than on developing current staff? - Employee Engagement Score – Regular engagement surveys can reveal if employees feel their strengths are being leveraged. Low scores often correlate with poor utilisation, low morale, and eventual attrition.
▢ Are engagement survey results acting as early warnings? - Time to Productivity – How long does it take a new hire to reach full output? A long ramp-up period might point to inefficient onboarding or poor job-role fit – both are forms of underutilisation in disguise.
▢ How long before new hires start delivering real value?
While simple, these questions can uncover inefficiencies often missed in busy operational routines. If you want to dig deeper, move on to the advanced line of action.
Second Line of Action: Calculate the Actual Cost Using These Formulas
Once potential issues are identified, use these formulas to put a number to the problem.
| Metric | Formula | Notes |
| Employee Turnover Rate | (Employees Who Left ÷ Avg. Total Employees) × 100 | Use exit interviews to probe for underutilisation-related departures. |
| Turnover Cost | Exits × (Recruitment + Training + Lost Productivity) | Average is 30–200% of salary (SHRM). |
| Absenteeism Rate | (Days Absent ÷ Available Workdays) × 100 | High rates suggest disengagement. |
| Overtime Cost | Overtime Hours × Pay Rate | Flag over-reliance on a few employees. |
| Training Investment per Employee | Total Training Cost ÷ Trained Employees | Low spend may equal low growth. |
| Internal Mobility Rate | (Internal Role Changes ÷ Total Employees) × 100 | Encourages retention and skill use. |
| Revenue per Employee | Total Revenue ÷ Total Employees | Decline = possible underutilisation. |
| Cost per Hire | Total Hiring Cost ÷ New Hires | High cost with low ROI? Reconsider. |
| Engagement Score | (Survey Points ÷ Max Possible) × 100 | Use trends over time for accuracy. |
| Time to Productivity | Days to Full Performance × Daily Salary | Long ramp-ups are costly. |
Final Thoughts
Employee underutilisation is silent but expensive. Whether you’re running a team of 10 or 100, the gap between “present” and “productive” could cost you thousands. Start with the checklist, then use the formulas to make better business decisions.
When you quantify potential, you can unlock it.
Do you need assistance in identifying possible gaps in your HR practices and processes? Our ‘Deep Dive HR Audit can help! It’s a structured, 60-minute interview with your HR champion across key HR domains. It results in the identification of your people management strengths and development areas, with recommended priorities and guidelines for implementation, all contained in a tailored report.
We will be here to help you improve the quality of your talent management.
About Competence SA
Competence SA identifies, develops, and enables potential through the provision of the following services:
- Talent management consulting
- Job descriptions and competency frameworks
- Recruitment
- Psychometric testing
- Employee development
- Leadership development
Contact us at hello@competencesa.co.za or 082 853 7456
