Employee Turnover Costs More Than You Think

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Organizations are built by people. Department heads and employees build an ecosystem.

It should come as no surprise then that when a large group of people leaves the organization within a short period of time, it drains the company of both costs and time.

Employee turnover costs impact businesses in many ways, most times beyond just costs.

The Bureau of Labor Statistics reveals that the average rate of turnovers in the U.S. (2017) was 26.3% over the year.

The increase in turnovers in the current climate proves that companies underestimate the importance of keeping their employees engaged.

Low retention rates end up costing companies significantly.

According to the Society for Human Resource Management, employers will need to spend almost 6-9 months of an employee’s salary to train a replacement.

The key to avoiding employee loss lies in keeping employees engaged and fulfilled in their workplace.

Employee Turnover Costs and Losses

When an employee leaves an organization, the financial implications extend far beyond the mere cost of hiring a replacement. 

Employee turnover inflicts a multitude of direct and indirect costs that can severely undermine a company’s bottom line and operational efficiency.

Cost of Training

Onboarding and training new hires is a resource-intensive endeavor. According to the Association for Talent Development, the average cost of training a new hire can range from $1,000 to $5,000, depending on the role and industry. 

This investment not only encompasses formal training programs but also accounts for the time and productivity lost as seasoned employees divert their attention to mentoring and guiding new team members.

Interview Expense

The recruitment process itself is a significant expense. From advertising job openings to conducting interviews, screening candidates, and performing background checks, the costs can quickly accumulate. 

The Society for Human Resource Management (SHRM) estimates that the average cost-per-hire is around $4,700, a figure that can be considerably higher for specialized or executive-level roles.

Advertising Cost

To attract top talent, companies often invest heavily in job postings and advertising campaigns across various platforms, including online job boards, social media, and professional networking sites. 

These advertising costs can vary widely depending on the industry, location, and reach of the campaign.

Lowered Engagement

High turnover rates can have a ripple effect on the engagement and morale of remaining employees. When colleagues depart, the added workload and uncertainty can breed frustration and disillusionment, leading to a decline in productivity and commitment. 

According to Gallup, actively disengaged employees cost the U.S. economy over $600 billion annually in lost productivity.

Productivity

Even after a new employee is hired and trained, there is typically a ramp-up period during which their productivity is lower than that of a seasoned employee. 

This temporary productivity gap can last several months, depending on the role’s complexity and the individual’s experience level.

Impact on Morale

Employee turnover can adversely impact team dynamics and morale, particularly if key personnel or long-tenured employees depart. 

The loss of institutional knowledge, disruption of established workflows, and uncertainty associated with turnover can foster a sense of instability and diminish overall team cohesion and effectiveness.

These multifaceted costs underscore the critical importance of implementing effective retention strategies and cultivating a positive work environment that encourages employee engagement and loyalty. 

By proactively addressing the root causes of turnover, companies can mitigate these substantial financial and operational burdens, fostering a more stable, productive, and cost-effective workforce.

Takeaway of Employee Turnover Costs

The cost of replacing an individual employee goes up to two times the employee’s annual salary.

Employee turnovers result in the loss of reliable people. Most times, it is the innovators and effective problem solvers who decide to leave.

What’s interesting is that preventing such a loss is simple. It may require effort and change but it is possible.

When employees feel that they belong in the company and are truly appreciated for the work they do, they are much less likely to leave.

Businesses must start genuinely caring about who works for them and the value they generate.


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