How Much Does High Staff Turnover Cost a Company?
Any organization that suffers from high staff turnover will see their bottom line suffer as well.
Employee Benefits News estimated that turnover costs employers 33% of an employee’s salary. To put that statistic into real numbers, let’s say an employee earned an average of $45,000 per year. It would cost the company about $15,000 if he left.
If another employee earned $120,000 annually, then it would cost $40,000 if she left. Even if a mid-sized company lost just 5 to 10 employees per year, that’s hundreds of thousands of dollars out the door.
At Empire Resume, we want to discuss why employee turnover is so costly, why do some companies experience such high turnover, and what can they do about it?
Why Is Employee Turnover So Expensive?
The costs of employee turnover come primarily from the expenses associated with hiring a replacement. First, there are fees associated with simply advertising the open position. If a company uses an outside recruiter, they can charge up to 30% of the new hire’s salary as a fee.
Time spent interviewing candidates, checking references, and administering pre-employment tests add to those costs. Then, there are the costs of training the new hire, benefits enrollment, and administrative on-boarding tasks.
Additionally, during the first couple of months, others on the team may be pulled away from their work to train the new hire or at least help the new hire get acclimated. That means that one or more employees is doing something other than their main job for at least part of the day. As a result, the average productivity and earning potential of the team is reduced.
What Are the Intangible Costs of Turnover?
The financial impact of losing an employee is one thing, but companies should not overlook the intangible costs of employee turnover, including:
- Reduced morale: The departure of just one team member can do damage to overall team morale. The blow to morale significantly increases when there are multiple departures over a short period of time. Everyone is expected to take on more work, at least temporarily, which can lead to burnout and more dissatisfaction among employees.
- Damaged reputation: Over time, a company may develop the reputation of being a “revolving-door” employer among job seekers. This reputation won’t attract high-quality candidates to fill open positions. Instead, companies will be forced to hire lower-quality talent which can reduce morale and productivity even more.
- More turnover: Turnover tends to spread like a virus. As more employees leave, their co-workers feel left behind and start to wonder what they be missing out on. Sometimes, they actually find out what they’re missing because their former co-workers call them up to tell them how great their new job is. Job envy is strong incentive for people to leave their positions in search of new opportunities.
Why Do Companies Have High Turnover Rates?
If an employer can’t keep employees for the long term, then these reasons may be why:
- The company culture stinks: Typical hallmarks of a toxic work culture could be an environment where backstabbing is prevalent, work-life balance is non-existent, leadership is disengaged, and everyone is overworked. No one wants to work for an organization with a toxic company culture. In fact, 47% of job seekers said that poor company culture as the main reason they left their last employer.
- Middle management is awful: Nothing makes employees run from their current employers faster than not feeling supported by their direct manager. For any business to be successful, workers must have confidence in the leadership team. Otherwise, employees will start to leave.
- There’s no career growth: Employees want to see a clear growth path, whether that’s in the form of upward mobility, skills development, or continued learning. Top performers who aren’t getting the challenges and growth opportunities at their current employer won’t hesitate to find them elsewhere.
- Leaders talk; but doesn’t listen: Employees want to know that they have a say in how the company is run and what the culture looks like. When leadership talks a lot, but doesn’t listen, then employees feel like they don’t matter.
- Recognition is non–existent: Nothing makes employees feel undervalued more than not recognizing their achievements or when they’ve gone above and beyond for the company. If they feel like their contributions aren’t valued, then they’ll start looking for the exit door.
How Can Companies Reduce Employee Turnover?
So far, we’ve discussed the obvious and hidden costs of employee turnover and the reasons why employees leave. But there is some good news: 75% of employee turnover is preventable. Companies should use the following tips to improve retention.
- Make small improvements: When it comes to reversing high turnover rates, companies should keep this in mind: little things matter. Implementing a work-from-home policy, allowing a more relaxed dress code, budgeting for free snacks or lunches are all small actions that can make a big difference in employee retention.
- Recognize performance: Putting an employee recognition program in place can increase engagement and reduce turnover. The program should include opportunities for employee spotlights and peer-to-peer recognition across all the company’s communication channels.
- Make feedback easy: It’s never been easier for employers to use anonymous surveys to take the pulse of their staff. Employers who show they care about their employees’ opinions earn their trust and respect. Employees who feel heard and see action taken as a result of their feedback tend to stick around.
- Conduct exit interviews: Not enough employers take advantage of the exit interview. When employees are headed out the door, they’re much more likely to provide candid and honest feedback. It’s the perfect opportunity for employers to take quick action and perhaps prevent others from leaving because of similar reasons.
- Create a workplace that cares: Employers need to build a culture where people respect and appreciate each other. Employees will feel happier on a daily basis knowing they are surrounded by people who care about them as people, not just what they can produce.
- Implement a strong company mission: Employees are more engaged when they know they are working towards a larger goal. One that goes beyond just increasing profits. Employers need to get clear on their company’s true mission and then discussing with employees their role in executing the mission.
- Make time for fun: Every workplace needs to allow for some fun every now and again. Holiday parties, after work events, or group lunches help employees form stronger bonds, reduce stress, and feel appreciated.
High Turnover Rates Can Be Turned Around
Companies who are concerned about the high cost of turnover need to re-think their employee retention methods in order to keep top talent and remain competitive. In the end, happier staff means lower turnover, a better workplace culture, and a healthier bottom line.
Maria Gold is a Content Manager/Writer for Empire Resume. She is dedicated to helping educate and motivate people with the latest career articles and job search advice. Her interests range from writing to programming and design. She is also passionate about innovation, entrepreneurship, and technology.