Costs of employee turnover

7 Experts Discuss the Costs of Employee Turnover

There are a number of costs involved when you have an unexpected departure of an employee. The obvious ones are items such as advertising and recruiter fees. However, there’s actually a lot more to the story – in this article, seven experts share their thoughts on the costs of employee turnover.

As business owners, a resignation typically comes as a shock. Depending on the notice period, it may be a rush to find a suitable candidate to fill the now empty role. Then there is preparation of handover materials, new employee training and the costs of actually advertising and finding a person.

There are hidden costs as well; the time looking through mountains of candidate applications (if you are lucky to get quite a few) and the time taken to interview the people who pique your interest.

There’s also the chance of a negative hit on company morale and the potential loss of knowledge if the person leaving has been with you for some time.

In Britain, employee turnover is a £4 billion issue

You read that right! Four. Billion. Euros. In this article, Replacing staff costs British businesses £4bn each year, for UK newspaper, The Telegraph, journalist Scott Campbell shares with us this scary figure.

He writes “The average fee for replacing a departing staff member is £30,614, says Oxford Economics and income protection providers Unum.

“This figure comprises two typical amounts – £5,433 for logistics, such as agency fees and advertising, and wages during the time when a new employee is yet to reach optimum productivity level, believed to be an average of 28 weeks at a cost of £25,182.”

The detailed costs of employee turnover

So, where does such a high figure of costs come from? Greg Willard, PhD gives us further detail in his article on ERE, titled How To Really Calculate The Cost Of Employee Turnover,

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In fact, Dr Willard gets into great detail about the formula for calculating the financial impact of employee turnover. He states “”We can directly translate between time and money (time = $) to provide specific costs by multiplying hours by hourly wage for different types of employees, tasks, and responsibilities.”

Employee turnover costs you may not have considered

An area frequently not considered is the workplace integration costs. “Another seemingly minor point shouldn’t be overlooked; workplace integration, from assigning the new hire a desk to fitting him or her onto the right team of peers, can be costly. Businesses are looking at more than simply providing a computer and an ergonomically designed desk chair; there’s also the cost of physical space as well as software, cell phone, travel and any special equipment or resources required for the job.” States Annie Mueller in her Investopedia article, The Cost Of Hiring A New Employee

“High employee turnover for a company is a huge underlying problem that is not so tangible, making it more difficult to address. Many companies do not have systems in place to measure the true costs and the indirect costs are much higher than most would think.” Says Karin Volo in her blog post, How much employee turnover is really costing your business”.

costs of employee turnover

Photo: Mike Poresky, Flickr

Will your company morale be affected?

It’s not just costs of employee turnover that we should worry about either, says Christina Merhar.

In her article on the Zane Benefits blog, Employee Retention – The Real Cost of Losing an Employee, she states “Frequent voluntary turnover has a negative impact on employee morale, productivity, and company revenue. Recruiting and training a new employee requires staff time and money”.

Christina goes on to write “One of the reasons the real cost of employee turnover is an unknown, is most companies don’t have systems in place to track exit costs, recruiting, interviewing, hiring, orientation and training, lost productivity, potential customer dissatisfaction, reduced or lost business, administrative costs, lost expertise, etc.”

Employee retention should be our focus

To avoid all these costs, we need to work hard and focus on employee retention.

“Employee retention is an underrated and extremely important part of running a successful business. That is because the cost of replacing an employee is substantial – far more than most companies realise.” writes Saxon Marsden-Huggins in his article, Replacing Lost Employees: More Expensive Than You Think.

Saxon adds a very poignant point about resigning before actually departing as well; “You start losing money the moment your employee decides they want to leave. You will rarely see much productivity from an employee that is on their way out.”

In their article, There Are Significant Business Costs to Replacing Employees, Heather Boushey and Sarah Jane Glynn write “Implementing workplace policies that benefit workers and help boost employee retention is not simply a “nice” thing for businesses to do for their employees. Maintaining a stable workforce by reducing employee turnover through better benefits and flexible workplace policies also makes good business sense, as it can result in significant cost savings to employers.”

Our previous article, 10 Secrets to Employee Happiness reveals the top ten reasons why many people change employers – this is great knowledge to have.

In Summary

To avoid the costs of employee turnover, we need to focus our efforts on retaining our best talent.

Employee retention starts with your company culture. Ensuring you have great company values, a good working environment, and a good level of employee engagement are often cited as three good preventatives to reduce employee turnover.

Compared with the costs mentioned in these articles, these are likely more cost effective as well!