Staff Turnover - What's It Costing Your Business?

Employee turnover in any industry comes with an inevitable cost. Whilst it's hard to put an actual $ figure on this cost, one can nevertheless readily identify the areas where the bulk of the money goes when an employee leaves a company and needs to be replaced.

  • There are considerable costs involved in hiring their replacement, notably advertising costs and the cost of paying other staff (or an agency) to screen, interview and assess applicants.
  • Once the replacement has been found, there is the cost of onboarding and training them – orientation, ongoing training, and also managing them through this process.
  • New employees invariably take time to become productive – this results in lost productivity costs to the business. They may also make mistakes that cost the company money.
  • Constant high employee turnover encourages an environment of disengagement amongst existing employees, which can in turn lead to them becoming less productive as well.  They may also take time away from their work to enquire why someone is leaving, or to 'discuss' it with others.​  There is also the added workload existing employees may have to shoulder whilst a replacement is found and trained, which adversely affects their ability to do their own job to full capacity.  
  • Leaving employees take knowledge and perhaps even clients and customer goodwill with them.

Many companies don't have procedures or policies in place to measure the cost of these things. Ergo many companies have little real idea of how much their staff turnover is actually costing them. Setting up a system to find out requires collaboration and co-operation between a number of departments (HR, Accounts, Advertising, Operations etc), not to mention a significant investment in time. 

However, to give some idea of what those costs are....

....a Society for Human Resource Management study calculated that companies can expect to spend between 6 and 9 months worth of the position's salary finding and training someone to fill it. That's a conservative estimate too. Other studies believe the figure is much higher ie that it may cost nearly twice as much as the salary on offer to find and train a replacement, particularly executive and high earning positions. 

But, as a general rule of thumb, this CAP study found that these costs typically vary depending on the wage/salary and role of the position. A low wage earning position for instance may cost around 16% of the annual wage to replace whilst mid-range positions cost around 20%. As previously mentioned, high-level executive and highly skilled positions on the other hand can cost a company anywhere up to 200% of the annual salary being offered!!

All of which means that companies should be doing whatever it takes to retain valuable employees! Unfortunately though, losing them on a regular basis is speeding up, not slowing down. The US's Work Institute​ for example found that over a quarter (27%) of US employees voluntarily quit their jobs in 2018, an increase of 8.3% on the previous year's figures and up by 88% on 2010 statistics! If this trend continues, companies could realistically expect to be turning over more than a third (35%) of their staff annually by 2023. Many other developed countries face similar statistics.

Translated into dollar terms, and according to a LinkedIn study carried out a few years ago, just a mere 1% staff turnover rate in a company (US) employing 10,000 people costs that company around $7.5 million US!  Multiply that by the anticipated 35% and you begin to see why employee turnover is a major concern. It eats into profitability from both ends of the scale by reducing productivity at the bottom end, and chewing up cash at the top end

Why do people tend to leave their jobs, especially during the first month to a year?

Surveys have consistently found that employees tend to quit for one or more of the following reasons, particularly during the first 6 weeks in a new job, widely recognised as a 'danger' period:

  • The position did not meet expectations - notably it was oversold to them
  • There wasn't enough clarity around the expectations and duties of the position
  • The company lacked career paths and the employee felt there was no room to grow
  • The on-boarding and training process did not instil confidence in the company, or eroded what confidence the new arrival did have
  • The old adage that 'people leave managers, not companies'
  • There were issues with the work environment – hostile, rigid, no or poor work/life balance
  • There was a perceived lack of employee support in general
  • Irregular check ins, leading employees to feel they're just a disposable cog in a wheel no one in authority cares much about

The good news however is that management doesn't have to 'grin and bear it'!  

There are proven retention strategies that do work. Using these and not relying on guesswork or 'hearsay' will help considerably. This includes:

  • Offering rewards beyond the purely financial for staying with a company – many studies into the modern workforce have shown that financial incentives are no longer the be all and end all of staff retention. Today's generation of employees are looking for far more than just money in their quest for job satisfaction. One of these factors is having and maintaining a good relationship with management and the company.
  • Keeping an eye on managers (and dealing with the problem ones) – if some managers, or a particular manager, is consistently losing employees, it's a fair bet the issue lies with the manager, not the employees.
  • Implementing a policy of internal promotions wherever feasible – not only does constantly employing externally cost more in terms of the points we've raised above, it also prevents existing employees from progressing. Lack of advancement and career development opportunities is one of the biggest reasons employees cite for leaving a company.
  • Engaging employees – this may be as simple as taking the time to take them out to for a meal to acknowledge a job well done, or providing other forms of recognition and acknowledgement. Engaged employees who are committed to their company and managers both work harder, and stay longer.
  • Develop a strong onboarding and orientation process that not only makes new team members feel welcomed and valued, and socialises them with company culture and values, but also involves their direct managers. The program should aim to remain engaged with the employee for at least their first 6 months with the company, if not longer.
  • Create a feedback system whereby employees can provide feedback about their jobs, their managers, and even the company itself without feeling like their jobs are under threat by doing so.
  • Provide employee benefits over and above the norm, particularly personalised benefits. A health benefits program is a good start, as are attractive parental leave conditions, childcare facilities, flexible working arrangements, and the like.
  • Make sure all exiting employees do an exit interview. This is an ideal opportunity to get some honest, up front feedback about the company and where it may be going wrong, especially if there is consistently high turnover.
  • Know what your retention rate is, and set some goals around improving it.

Some authorities on the topic also suggest that acquainting staff with the business metrics of employee retention vs turnover will make them more aware of the full impacts of staff turnover, and thus care more about it.

If your company also employs expats, finding and retaining the right people for these roles becomes even more critical. Expat employees come with a whole new set of considerations that can cost a company appreciably more than domestic employees do. We'll be covering these costs, and what you can do to better retain expat employees, in our next piece so stay tuned!
Implementing A Successful Expat Employee Policy
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Monday, 14 June 2021
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