AMB Performance Group Blog
The Hidden Costs of Employee Turnover
Employee turnover can be a major burden on any organization in terms of both the human cost and the financial burden that comes along with turnover. Whether we’re talking about tangible factors like money spent recruiting and hiring or the lesser recognized expenses like the loss of institutional knowledge within a company, there is no doubt that there are many different hidden costs of employee turnover.
The average turnover rate is right around 20 percent, perhaps oscillating a bit depending on economic shifts. Firstly, we will take a look at direct replacement costs, without factoring in the hidden costs of employee turnover.
Direct replacement costs cover the basics of recruiting and hiring to fill the recent opening within your company. This includes advertising, interviewing, screening, and hiring. If your company works with a recruitment firm, there may be an added expense there, but it does free up your human resource department and ensure that you are able to find the best possible candidates to fill your pool.
Direct replacement costs are typically calculated as being around half of the annual salary of the position being filled. As positions become specialized and require highly trained employees, your cost for recruiting goes up. With a lower-salaried job that does not require special training, you will be less likely to have to cast your net as wide; thus advertising and recruiting will generally be less expensive and less time-consuming. Higher paying jobs may require you to fly in and host candidates and day-long interviews and can be costly as they typically require the involvement of your human resource team, your managers, and many of your staff members.
While direct replacement cost can be estimated to fall right around 50 percent of the annual salary for the open position, the hidden costs of employee turnover may be somewhat more challenging to calculate. However, with careful thought and planning, your company should be able to come up with an approximate figure that accounts for all of the hidden costs of employee turnover.
Many companies report that the hidden costs of employee turnover can be anywhere from 90 to 200 percent of the annual salary for the open position. Again, this figure is going to be dependent on the type of job you are filling. Positions that require highly skilled employees will be more costly to fill, whereas positions that are entry-level or do not require specialized training will be much less costly to fill.
Loss of Institutional Knowledge
So what are some of the hidden costs of employee turnover? There are costs that we simply can not put a number on. For example, losing an employee who has a great deal of institutional knowledge can be devastating to businesses, particularly if they have not always been steadfast with documentation.
Another hidden cost of employee turnover is the possible impact it can have on staff morale and productivity. It is normal for employees to move on when they find better opportunities for themselves and a certain amount of career hopping can be expected. However, when a company has too much turnover it can have a major impact on staff morale.
Colleagues talk to each other and build trust with one another. When an employee isn’t happy in a job, chances are there are others that feel the same way. This is when companies run the risk of a spike in turnover which may result in the need to fill multiple positions simultaneously. Turnover leads to unhappy employees in many cases which leads to more turnover.
When morale is down and turnover rates are higher than they should be, there are often trends of decreased productivity. Workers may feel less inclined to give it their all when they are worried about the culture of their workplace and are finding out that other people are unhappy.
All too often, the costs of onboarding are not considered when we calculate how much it will cost to turn over a position. Onboarding is more than just training, although training is a major part of it! Onboarding is a larger process with the goal of successfully integrating a new employee into the company.
Onboarding may include having dinner with the employee, giving them tours, setting up their workstations, and giving them access to drives and any electronic resources they will need. Successful onboarding introduces an employee to all aspects of the company to ensure they are set up for long-term success.
Poor onboarding is actually one of the factors that affect turnover. If an employee is not properly integrated into the culture and is not set up with the tools they need to do their job there is little incentive for them to stay on.
What You Can Do To Decrease Turnover
There are many factors that affect turnover and as we have mentioned turnover creates turnover in many cases! So, what can you do to decrease turnover in your company? Start by taking a deep dive into your job descriptions and roles within the company. Are your employees being challenged and do their jobs reflect their skill level? You may find that some reorganization and restructuring of positions are necessary.
Another factor that affects turnover is stagnant wages and lack of mobility. Every employee wants to be properly compensated for their work. When employees find that their salaries are lower than others across the industry they will start looking elsewhere. It is also the case that companies lose great employees because there is no path toward promotion for talented and hardworking employees within a company.
The bottom line is that businesses (of any size or profit margin) cannot afford the hidden costs of employee turnover. Strategize for a stronger tomorrow – with a team of talented employees to drive you there. Contact AMB Performance Group to learn more.