The Real Cost of Employee Turnover: Impact on Finance

December 5, 20164:34 pm3978 views

How much does an employee turnover cost you? While larger costs maybe generally hidden, they do still exist. Many at times, people do not know the actual costs incurred to business and financial impact of employee turnover. Some of the costs which never show up on the balance sheet are lowered productivity levels, the cost of a headhunter for specialized positions, overworked remaining staff, knowledge lost, interviewing and training costs, etc.

With the economy gradually improving, workers have become more confident about leaving their jobs in search of greener pastures, especially as recent data shows employees are more likely to gain a salary increase if they pursue new jobs. In February alone, three million people (or 2.1 percent of the United States workforce) quit their jobs. During the same time, 1.7 million people were laid off or fired.

That’s a whole lot of employee turnover, and it comes at a price. A revolving door of employees can negatively affect every facet of a company—workplace productivity, employee morale, customer satisfaction and the bottom line. And no business (no matter how small or large) is immune. Here’s what to expect when employees walk out the door.

The Real Cost of Employee Turnover

Employee turnover costs vary by organization, industry and position. Online calculators can help you determine the employee turnover costs specific to your situation. In general, these cost factors tend to fall into one or all of the following categories:

  • Recruitment costs

Running advertisements, hiring recruiters, screening and interviewing candidates, paying to fly candidates to the office and put them up in hotels and onboarding new hires all add up to a big expenditure of both finances and employee time.

  • Lost productivity

When an employee vacates a job, they leave behind a set of tasks that may be left undone until the company finds a replacement, and they take with them hard-to-replace institutional knowledge. When important tasks aren’t completed or remaining employees are burdened by extra work on top of their existing jobs, productivity is guaranteed to falter.

Even once a new employee is hired, studies suggest it takes one to two years before they reach the same productivity level as the employee who left. Some sources estimate this lost productivity costs anywhere from 150 to 250 percent of the job’s annual compensation.

  • Decreased engagement

When employee turnover is high, it can take a toll on the employees who remain. Seeing other workers leave may prompt employees to wonder why people are dissatisfied, which can reduce team morale. Morale also plummets when remaining staff are asked to take on additional work (often for no extra pay) in an employee’s absence. And as morale decreases, the odds that other employees will jump ship increases.

  • Increased likelihood of errors

Until they get up to speed, new employees lack the institutional knowledge to solve problems quickly and effectively. And if these employees are in a customer service role, their errors may lead to decrease in customer satisfaction, which in turn can negatively impact the company’s reputation and bottom line.

How to Reduce Employee Turnover

If those numbers have you spinning, take a deep breath. Remember that in some cases, it’s actually beneficial to lose an employee. If they under-performed, treated coworkers poorly or were an otherwise bad fit for the company, then it’s better for everyone that they moved on.

And here’s more good news: It is possible to reduce the likelihood that your top performers leave your organization for greener pastures. You simply have to create a work environment that maintains morale and inspires employees to keep coming to work.

Sound easier said than done? Research suggests that creating a desirable work environment is actually pretty straightforward. Invest in policies that support workers, such as paid sick days, parental and adoption leave, professional development training, health care, flexible scheduling, fair wages and consistent salary increases.

These policies aren’t just the right thing to do. They also keep employees engaged and productive, reduce absenteeism and human resources issues, limit the chances your top performers leave for a job with better benefits and even improve the company’s bottom line.

In fact, higher employee engagement can translate to up to 400 percent more profitability. That should be motivation enough to treat your workers right.


The original content along with Infographic was first published here

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