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The real costs of employee turnover

curranrecruit
Jul 29, 2014
3 min read

Employee turnover cost is defined as the cost to hire a replacement employee and train that replacement. But there’s more to it than just getting a new employee, and in this week’s blog post we want to share with you the real costs of employee turnover.

It is estimated that the cost of employee turnover can range from 40-400% of an employee’s annual salary. The total cost of turnover includes money, time and other hidden costs, which when combined, are often much more substantial than expected.

Studies on the cost of employee turnover are all over the board.

SHRM 2011, predict that every time a business replaces a salaries employee in the US, it costs 6-9 months’ salary on average. For example, a manager that makes 40k a year equals 20k to 30k in recruiting and training expenses.

Others predict the cost is even more. Losing a salaried employee can cost as much as 2x their annual salary, especially for a high-earner or executive level employee.

According to Nicholas Barnett, Insync Survey 2012, an average staff turnover rate of 18% costs organisations with 100 employees around $1 million every year in Australia.

Here are some of these costs broken down:

Recruitment & Selection Costs – The cost of hiring a new employee including the advertising, interviewing, screening, and hiring.

Separation & Administration Costs for leavers – exit interviews, payroll changes, severance pay etc.

Cost of on-boarding a new person including training and management time. For example, over 2-3 years a business likely invests 10-20% of an employee's salary or more in training

Lost productivity – it may take a new employee 1-2 years to reach the productivity of an existing person; Missed deadlines and disruptions to workflow.

Covering a vacancy with temp-workers or overtime

Customer service and errors - new employees take longer and are often less adept at solving problems.

Cultural impact –Whenever someone leaves others take time to ask "why?"

Reduced morale – may cause remaining employees to express a desire to leave the organisation.

Reputation costs - When an employee leaves—especially a high performer—managers and co-workers aren’t the only ones to notice the change. Customers notice too.

Seeing these above facts, it’s obvious that reducing employee turnover is an issue not only for HR but the overall organisation, and requires the focus and attention of the whole executive team, supported by managers at all levels.

Reducing employee turnover

The main reasons for labour turnover can be attributed to the following:

Promotion outside, change of career, level of pay, lack of development or career opportunities, redundancy, retirement, leave to have/look after children etc.

While some reasons are not within an organisations control and cannot be avoided, by doing right by your people you can help retain not only top talent but retain the desired reputation for your organisation.

Here are some ways to lower employee turnover in your workplace:

· Hire the right people from the start. Interview and vet candidates carefully, not just to ensure they have the right skills but also that they fit well with the company culture, managers and co-workers. Make sure candidates have realistic expectations of the position and what it entails.

· Set the right compensation and benefits. Work with HR to get current data on industry pay packages, and get creative when necessary with benefits, flexible work schedules and bonus structures.

· Create a positive work environment. Meaningful recognition and praise from managers can go a long way and help to achieve this. Awards, recognition and praise might just be the single most cost-effective way to maintain a happy, productive work force.

Provide regular feedback. Employees are hungry for feedback that makes them better. Weekly feedback sessions are fast and effective at making the employee feel valued and heard.

Exit interviews and attitude surveys. It sounds simple enough right? When someone leaves, ask them why. But it can be a hard to get someone who may have been unhappy to answer honestly, managers to address these with care and use information constructively as a foundation for making improvements to the organisation.