Study Identifies Hidden Labor Costs Associated with Full-time RNs

By Debra Wood, RN, contributor
August 24, 2011 - Overtime and nonproductive hours contribute to a high cost of employing full-time registered nurses, according to a survey of 120 hospital executives by KPMG, an audit, tax and advisory services firm.

KPMG’s 2011 U.S. Hospital Nursing Labor Costs Study, commissioned by the National Association of Travel Healthcare Organizations, found that the “all-in” hourly cost of a full-time RN is 176 percent of base hourly wage and averages $98,000 per year.

Respondents reported base wages at $56,000 annually, less than the Bureau of Labor Statistics May 2010 report of $67,700 per year for an RN. The authors indicated that may be due to older federal data, a margin of error, sample size, location or average work week.

On top of that base pay, all-in costs include insurance benefits, including health, disability, malpractice and workers’ compensation, which represents about 8 percent of the cost; recruiting and orientation, at 1 percent; administrative and payroll costs at 1 percent; and nonproductivity costs at 13 percent, which may be higher during overtime hours.

Nonproductivity represents time in educational programs and personal Internet use. The authors acknowledge the hidden costs are not easy to quantify.

The Employee Benefit Research Institute in Washington, D.C., reports that as of December 2010, average benefit costs represented 30.3 percent of total compensation costs.

Several of the survey respondents indicated that taxes, shift differential and insurance were key cost drivers, and that holidays and paid time off, overtime and training contributed to the high cost of employing RNs.

RNs at the sample hospitals work an average of 41 hours per week, with overtime representing on average four hours weekly. However about 8 percent of the respondents said overtime at their facilities averaged 10 hours per week per nurse. Overtime pay is typically 1.5 times base pay, but some facilities pay double the base pay to entice nurses to pick up additional shifts.

The responding hospitals report annual attrition at an average of 14 percent, with a range of 1 percent to 20 percent. They said filling an RN position on average takes 37 days. Then it takes 28 work days to orient the new person, resulting in a total effect on productivity for that position of 65 work days.

About two-thirds of the responding hospitals use traveling or per diem nurses, which is driven by seasonal needs, a local nursing shortage, facility growth and the flexibility travelers and registry nurses allow.

Hospitals not using travelers relied on an excess supply of staff, part-time nurses, incentives to reduce turnover and encourage overtime, and fewer nurses leaving their jobs as a result of the poor economy. Some of these factors, such as overtime, lead to increased cost.

Sixty-three percent of the respondents ranked quality of temporary nurses as the most important factor when considering hiring, followed by flexibility and cost. Providers, typically, use multiple staffing agencies to meet their needs. Respondents indicated a 9:1 ratio of employed to temporary nurses was ideal, assuming cost and quality were equal.  

Fifty-nine percent of the respondents anticipate continuing to use temporary nurses at the same level as 2009, with 41 percent anticipating they would increase the use of temporary nurses, including 13 percent who thought that growth might be as high as 30 percent or more.