Experiencing high employee turnover? Worried about how much this employee turnover is really costing you at the end of the day?
The actual costs for each business will ultimately vary, but here’s a few examples for you to consider what it costs your business every time you lose a valued employee.
Let us count the ways…
One, High Employee Turnover Costs You Productivity.
That valued employee had a job they were doing on a daily basis. Who’s doing that job now? Nobody? That means you have had a loss of productivity. Even if you delegate their tasks to other employees, they have a job they were doing too and they will most likely only do the most important tasks. Employee turnover costs you productivity because the person who was familiar with and efficient at performing these tasks are no longer doing them. This has potential impacts on work quality and customer service as well.
Two, High Employee Turnover Costs You Relationships.
Your high performing employees are doing more than just the job. As they do their work they do it in a way that connects with other employees, other vendors, and your clients or customers. Employees leaving can damage these relationships and cost your business real dollars in the aftermath.
Three, High Employee Turnover Means Overworked Staff.
As discussed in point number one, your ex-employee was doing something… since they are no longer doing this work, this means another employee is doing the work AND the work they were already doing too. This causes the quality of their work to drop. Guess what else will probably suffer? Their satisfaction and engagement. When employees are stretched too thin, they often end up looking for a new job. The extra work they’re doing might also require overtime. It can also prove difficult (and expensive) to regain their goodwill. This can cause employee morale to drop and have an impact on the overall company culture.
Four, High Employee Turnover Costs You Knowledge.
You can give the next employee a roadmap for what your ex-employee was doing, but the knowledge and experience they had is impossible to equip this new employee with. Jobs that seem like a simple A + B = C type of position are always more complex under the surface. On a daily basis your ex-employee drew upon their knowledge of people, history, traditions, managerial preferences, norms, and other knowledge only gained by experience from doing it for years. All this knowledge is usually lost when someone quits.
Think about a high performing employee you currently have — is their job well documented in a way that someone could step up and take their position without skipping a beat? Were they cross trained? Who has control of the passwords? Depending on how valuable the employee was, there may be a cost to future innovation and acquiring new clients as well.
Five, High Employee Turnover Costs You Hiring Expenses.
You are paying someone for finding these candidates. Maybe it cost you time? Maybe it was the hiring manager? Maybe you have an HR person that you pay spend the time it takes to find them? Maybe you hired a headhunter? However it looked, it cost you hard dollars.
Going through resumes takes precious time. Then going through pre-interview screening calls, formal interviews, and selecting a candidate takes a crazy amount of time. Not to mention paying travel expenses if necessary…
Six, High Employee Turnover Means Wasted Training Costs.
Training costs like seminars, paid training terms, and other spreadsheet items are obvious. But there are some costs that are less obvious here. What about the time your other staff spent training this employee? Someone was most likely responsible for checking their work. Someone invested time sharing their knowledge with them. This time takes that person away from their normal work. When new employees come on board it always means there will be two employees doing one person’s job for at least a short time.
Seven, High Employee Turnover Costs You in Administration.
There are always loose ends that need tied off when an employee leaves. Did they have benefits? Do you have to comply with COBRA (do you have over 20 employees)? Did they have accrued PTO that needs paid out? Did they have severance that needs paid off? There are many administrative details that will need to be taken care of.
What Do All These Costs Add up To?
Ok, so I think we’ve established high employee turnover can be expensive. But how much does all this really add up to? Most estimates run as high as 150 percent of their annual salary.
Let’s let that sink in…
Ouch. That means not only are they gone, but it’s like you’ll be paying them for another year and a half after they’re gone…
This estimate is much lower for low level positions, but still expensive enough to motivate most employers to make retention a top priority.
So, are we saying you should never fire employees either? No, it all comes down to productivity. If an employee is costing you in productivity, so much so that it outweighs the productivity losses you will be hit with by replacing them you should definitely replace them. Believe it or not, these low producing employees actually motivate your high producing employees to want to quit. Try to improve their performance first, of course. But sometimes, there’s no other option.
On the other hand, consider pay increases for good employees, and give raises and bonuses when merited. It will cost more to lose those employees… I hope after reading this article you understand why.
What Can Your Business Do to Reduce Employee Turnover Costs?
Well, it might be smart to start with examining your hiring process. This is your front line defense against turnover. By hiring smarter, you are reducing turnover costs. Next you’ll look at retention and engagement strategies. These are big topics. We encourage you to check out our retention guide to give you a few ideas to get started. Finally, offering benefits such as a 401(k), FSA, and performance bonuses can help to keep employees happy and engaged.