HR

Turning Your Focus to Turnover: How Much Employee Turnover is Costing Your Company

August 9, 2018

Determining the cost of employee turnover isn't a task any employer wants to worry about. Here are some methods employers can use to reduce this risk.

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Although it’s not a question a lot of employers want to ask, it’s important to know; what is the cost of employee turnover?

discussing the cost of employee turnoverYou know the routine. An employee sends you a meeting invite, with little preface, except maybe to include a subject like “Future Planning.”

You hope that the meeting will be the employee’s ideas for fortifying their current role into something that will transition them to the next tier within the company, but you’ve noticed that they have seemed a little distracted and uneasy lately, which you dread could be a sign of the end being near.

The meeting begins with the usual pleasantries before they say, “Well, it’s with bittersweet emotions that I’m submitting my 30 days’ notice.” And there it is.

Reasons why employees leave

While many people assume pay is the biggest reason why an employee would leave their current place of employment, there is actually a vast array of possible reasons.

Some of the top reasons an employee might seek employment elsewhere include the lack of upward mobility, purpose and passion for the work, and their relationship with the team and upper management.

How much does it cost a company to rehire?

So if an employee wants to leave, why not just help them pack? If it could only be that simple (cue Bonnie Raitt moaning, “I can’t make you love me if you don’t.”). The truth is, it can cost employers a significant amount of money to lose a productive employee and rehire another.

In fact, in a Work Institute study of 34,000 respondents, the two most notable figures are that the cost to replace a lost employee is on average 33% of that employee’s annual salary, and that in 75% of cases the departure could have been prevented.

Calculating the cost of employee turnover

Other studies contend that the cost could be much higher. Let’s break it down:

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An employee has been with the company for 10 years and makes $60k per year. A new employee with the same degree, skills, and credentials comes from another company in a similar position, but requires $65k to make the move.

Five-thousand dollars doesn’t sound like a big deal, but considering the average cost of 33% of the annual salary for recruiting and training, the number looks more like an additional $25k to replace the former employee.

It is also important to note the time it will take to train the new employee (think resources from other sectors of the company, as well as your department) will translate to dollars. You must also consider the operational time lost during that learning curve.

When it is worth an employee leaving for a new hire

Now, knowing the financial hit a company might take when an employee decides to leave doesn’t mean you should automatically hit your knees begging for mercy each time an employee threatens to bail. Keep in mind that there will be some employees who will make a game of it and use bluffing as a tactic for seeking an increase in pay—merited or not.

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On the other hand, there will certainly be employees who you will immediately recognize as key players. Or those employees whose knowledge base would be difficult to replicate quickly with a replacement.

In those situations, it might be a wise idea to thank the employee for their contribution to the team, and ask what the main factors are in their leaving. If the items they list are items that you would have the ability to change, then negotiating the change so that they consider staying might be worth the effort.

How to avoid high turnover rates

While it is inevitable that employers will lose a given number of employees to organic turnover, employers will benefit from doing their best to try to avoid high turnover rates and the associated cost of employee turnover.

Stop it before it starts

The easiest way to avoid elevated rates is before an employee is even hired. This can be accomplished by paying close attention to the resume.

Does the candidate have a long employment history with other companies (at least 2 years or more with each former employer)?  Or have they worked for more than five different employers over a ten-year period?

Depending on the industry the candidate is in, past employment history can be a pretty good indicator of future employment behavior, so while you want to be careful not to discriminate against a candidate on any basis, you should use your best judgement when deciding if the candidate makes a habit of job-hopping.

Competitive Pay

Another way to avoid high turnover rates is to pay competitively. You know the old saying:  you get what you pay for. The same can be said about employees.  If you are notorious for paying the lowest wages within an industry, you will likely attract candidates with the least skills. These types of employees are probably using your company as a stepping-stone for the next endeavor.

Paying competitive wages will make you more relevant in the marketplace, and will attract skilled employees who will be better workers and will amount to revenue for the company.

Employee Satisfaction

While attracting quality candidates off the bat is important in employee retention, the best way to retain great workers is through employee satisfaction.8.9 blog image 5

I know you are picturing a bunch of happy people running around the business place like little Smurfs (well, except the token office Grumpy, of course). While that is a lovely (if not psychedelic) thought, there is a lot that goes into the overall ambiance of a worker’s environment.

It is not just the lighting or physical office space. The relationship with co-workers and the ability to seek promotion are concepts that affect an employee’s attitude toward their position. If the employee doesn’t gel with their team or boss, or they don’t think it’s possible to climb any higher than a support role, then those two things alone can be the catalyst for deciding to seek employment elsewhere.

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So, what can you do about it?

Simply put, always be mindful of the workplace attitude. Take the temperature with a survey.  Foster a good workplace environment by encouraging office activities (some workplaces have foosball tables or Wiis).  You can also treat your team to coffees brought in or lunches out as often as possible.

Also, make a point to have strategic career planning meetings with employees on an individual annual (if not more frequent) basis, so that they will know you are thoughtful about their position in the company and where you see them headed.

Some employees enjoy their role, but they find the day-to-day mundane, and feel empty without purpose. Aligning with a local charity, and having those kinds of employees spearhead the events, can be a good way to give philanthropic employees a sense of duty and passion for the company.  Investing in your employees’ happiness at work has proven to be as important as making sure they are paid fairly.

These are a few small steps that can lead to reduced turnover and ideally a lower cost of employee turnover.  Pair this with a great company culture and you’ll get at least a bit closer to that Smurf ideal.

When in doubt, ask

There is a takeaway from knowing the cost of employee turnover. That takeaway being, if you don’t know why employees are leaving, you should ask.  Many companies have an exit interview process, which helps their HR departments identify the reasons why employees leave.

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But if you could keep an employee from getting to the exit interview all together, wouldn’t that be a better business practice? A wise man once sang, “But if you could heal a broken heart, wouldn’t time be out to charm you?”  Yes, Mr. Rose, I believe it would.


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