What’s the Real Cost of Employee Turnover?

June 1, 2017 | BizRun Team
Employee turnover statistic

It’s your worst nightmare: as soon as you’ve trained that new employee, she puts in her notice. If it happens once, it’s probably just a case of bad luck. But if happens more often than you’d like to admit, you may have a real problem.

If your turnover (aka attrition) rate is higher than you’d like to admit, you’re not alone. More than 50% of all organizations around the world struggle to retain employees. Considering that 18% of your workforce is likely to leave within two years of being hired, you may need to keep that door swinging open as one employee leaves and a new one comes on board.

Unless, of course, you take steps to address the issue. And there are a number of reasons why you should. The reasons employees leave are many, but those aside, there are significant costs associated with turnover. Let’s look at what losing an employee really costs you.

The price of employee turnover

When you add up the total cost of replacing an employee, you have to factor in more than just the obvious financial costs. But those alone are significant.

It’s estimated that to replace an entry-level employee will cost you 30-50% of their annual salary. If you’re replacing higher-level employees with specialized knowledge, you could spend as much as 400% of their salary to find a qualified new hire.

To illustrate this, let’s say you lost three employees in a year. Here’s the breakdown:

  • The first is entry-level, with a salary of $35,000. You could spend $14,000 to replace him.
  • The second is mid-level, with a salary of $75,000. You’ll spend about 150% of her salary, or $112,500, to replace her.
  • Finally, a senior employee leaves, who earns $110,000. Using the 400% estimate to replace her, you could spend $440,000.

That’s a grand total of more than a half-million dollars in one year! But where do those dollars go?

If you retain a recruiter to help you find the most qualified applicants (and you really should, if you’re hiring for senior roles), you’ll pay 20-35% of the new hire’s salary in recruiting fees. So for a senior position earning $110,000, you’d pay a recruiter about $33,000.

If you’re handling the hiring process internally, you’ll pay around $400 just to advertise on Monster.com. If you use LinkedIn or other services, you can add even more expenses here.

If you’re open to non-local candidates and want to conduct in-person interviews, you’ll have to pay transportation costs. Should you hire from outside your geographic area, you’ll typically pay at least a portion of  your new employee’s relocation costs. These expenses can range dramatically, but the low-end average is $17,000.

In addition to these bigger costs, there are plenty of smaller ones, too. Things like conducting background checks or drug tests aren’t that expensive on their own, but they add up, particularly when you have multiple new hires. If you offer a signing bonus, that also adds to your hiring costs.

Though harder to calculate, the soft costs of losing and rehiring employees are also worth noting. These include the time associated with writing and posting job listing, fielding applications, and interviewing candidates. According to a recent talent management study by the Korn Ferry Institute, companies interview an average of 13 people for each new hire.

You’ll also lose productivity while the role is unfilled and while a new hire is being onboarded. The onboarding process itself requires a time investment from the supervisor, human resources and others. As does the offboarding of the employee who’s leaving.

Of course, there’s also the loss of the investment you made in hiring and training the exiting employee. There’s nothing more disheartening than spending months or years training up a new team member, only to lose them to a competitor. This loss also affects the morale of the team and that can lead to lowered productivity and even additional turnover.

Why good employees leave

Of course, there are times an employee leaves for reasons outside of your control. Perhaps his wife has a job opportunity in another city, or he wants to change careers entirely. There may be little you can do in these cases, but it’s worth evaluating if there’s anything you could have done better.

Based on exit interviews, there are the most common reasons employees cite for leaving a company:

  • Poor management
  • No opportunity for growth
  • Lack of training
  • Poor relationship with supervisor
  • Non-competitive pay

These workplace issues can often be ferreted out by surveying employees or just by asking good questions. A recent Harvard Business Review article also shared these warning signs that an employee might leave:

  1. Work productivity has decreased.
  2. Acting less like a team player.
  3. Doing the minimum amount of work.
  4. Less interested in pleasing their manager.
  5. Less willing to commit to long-term timelines.
  6. Exhibiting a negative change in attitude.
  7. Demonstrating less effort and work motivation.
  8. Less focused on job related matters.
  9. Expressing dissatisfaction with their current job.
  10. Expressing dissatisfaction with their supervisor.
  11. Leaving early from work.
  12. Losing enthusiasm for the mission of the organization.
  13. Showing less interest in working with customers.

Onboarding is key to retention

Because of the costs associated with employee turnover, it’s worth investigating ways that you can lower yours. The good news is, it may be simpler than you think.

Many agree that a thorough onboarding process is one of the most effective ways to keep employees engaged and employed with your company. When onboarding is done well, it can have a long-lasting effect on your employees success and loyalty. According to a frequently cited study conducted by the Society for Human Resources Professionals (SHRM), comprehensive and proactive onboarding not only lowers employee turnover, but it also increases customer satisfaction and company performance.

While you’ll always have employees that leave your company, you can proactively examine your culture and processes to ensure they’re not the ones you want to keep around. An investment in good onboarding can often mean the difference between a new employee staying for the long haul or leaving sooner than you’d like.

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