True Cost of Employee Turnover
Hint: It Costs More To Replace Your Employees Than To Retain Them
Although most companies keep track of employee turnover, many fall short when they try to understand its causes and costs in a meaningful way. It can be challenging to evaluate employee turnover for the first (or second, or third) time, so we’ll take you through this process step by step.
You and your team no doubt monitor spending on advertising, hardware, and workspaces, but you might not have a grasp on just how much employee turnover is costing you — which is why it’s probably costing more than you think.
Consider what the following could cost: writing and posting a job description, interviewing candidates, paying referral bonuses, having employees take on more work while a position is open, and training new hires, to name a few. Those costs can add up shockingly fast.
To gain a better understanding of the factors that contribute to employee turnover, let’s take a closer look at why it costs more to replace employees than retain them.
When an employee leaves, their responsibilities are absorbed, to an extent, by the employees around them, adding additional work to their already lengthy to do lists. However, when you’re short-staffed, there will always be work that won’t get done.
Job dissatisfaction can increase when employees are tasked with additional work and longer hours, causing them to question their own reasons for staying with an organization. There's no overstating the fact that employee recognition is crucialduring this period. Low employee morale can result in decreased productivity, creating a cycle that can also lead to negative changes in company culture.
In some cases, turnover can prompt additional turnover, with people following their leaders to a new company or moving on because they believe they’re missing out on professional opportunities by staying put.
In their search for new hires, organisations might pay to post job listings, hire recruiters, sponsor events, establish partnerships, and offer referral bonuses. Assessment tests, background checks, and various travel expenses associated with vetting candidates can also increase costs.
Organisations take an average of 51 days to fill open positions. During that time, organisations dedicate significant time and resources to searching for new employees, an unavoidable opportunity cost that comes with asking HR and other departments to recruit, screen, and interview candidates.
Once an organization has hired someone to fill an open position, that new employee needs to be oriented and trained. Employee onboarding, which includes orientation, training, and ramp-up time, can take several months.
In order to produce at the same level as the person they’re replacing, new hires have a lot to learn. They require assistance from their colleagues during the onboarding period, and that assistance has an inherent opportunity cost: every minute an employee spends training a new employee is a minute they're not producing their own work.
Now, this is not to say that time spent helping out a new hire is a waste of resources. The first few months at a new job are a crucial time for relationship-building. However, the strain on employees’ schedules can be significant, and it’s important to note that productivity might drop with the addition of a new team member before it goes up.
Lost Institutional Knowledge
Being a strong employee requires so much more than performing the particular duties of your role. Strong employees understand how their organizations function, from the people to the relationships and the culture. This kind of institutional knowledge takes time.
Depending on an exiting employee’s responsibilities and seniority, as well as the circumstances of their departure, the turnover cost related to lost institutional knowledge can exceed that employee’s annual salary. From documenting their responsibilities and processes to taking clients with them when they leave, departing employees can leave significant knowledge gaps in their wake.
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