Many workplaces struggle to retain staff. If this is true for your workplace it may feel like a revolving door of employees coming and going. But how much is employee turnover costing your business?
It’s common to assume that the cost of employee turnover includes those direct costs such as the time and money spent on recruiting a replacement, but it’s much more complex than that. A number of studies have been conducted on how high the cost of turnover actually is, with results ranging from 50% to 150% of the exiting employee’s salary. To put that into perspective, for a role that pays $80,000 per annum the employer could be hit with between $40,000 and $120,000 in true turnover costs. Multiply that by the amount of staff being lost each year and employers might wish to start placing human resources and retention strategies higher on their priority lists.
Below is an outline of what to consider when calculating the true cost of employee turnover. It includes both the direct/obvious costs and also the indirect costs which are sometimes forgotten.
The most obvious is the cost of hiring a recruitment agency to do the work, which can cost up to 18% of the salary dependent on the agency used. However, even if the employer runs their own recruitment campaign there is the cost of advertising the role, testing required, medicals, new licenses, and the one with the most impact – the time is takes for someone to organise all of this. Then there is the shortlisting of candidates, interviewing of candidates and the like. For a busy business, having to recruit often will eat up a lot of time and can really affect day to day operations.
Termination payments capture costs such as the requirement to pay proportionate long service leave entitlements for employees who are being made redundant, or who qualify for proportionate entitlements under the relevant legislation when resigning. In addition to this, where an employee is paid in lieu of working out their notice period the employer is paying salaries and wages for no output whatsoever.
When an employee exits a workplace, the workplace will essentially be working with one less headcount until a replacement has commenced. While there is a saving realised by not paying salary and wages for this period, there is a huge productivity cost where either another employee needs to step in to cover the responsibilities which results in their own position suffering, or where no coverage occurs at all. It’s also quite normal for a new hire to be less productive in their first few months as they will be learning their new role and slowly increasing their skills – so expect revenue to be less during this period.
Each time an employee exits there is a period where the new hire requires training. Whether that is formalised training over a number of weeks that is easy to quantify or informal training with a buddy, there is an indirect financial impact that cannot be avoided. Consider who will be facilitating the training or buddying with the new employee and what impacts that will have on time taken away from usual activities, or the costs of hiring an external facilitator. Another consideration is the cost of any training materials such as essential ‘pay per use’ online courses, booklets, licenses etc.
What about all of those little things that need doing when an employee is exited, and again when a new employee is on boarded. For example, when an employee exits there are items to collect such as keys, access passes, cars, fuel cards etc. Computer access needs to be switched off and termination payments made. When a new employee comes on board, the opposite occurs and the act of issuing essential workplace items takes place. The point is someone needs to do all of this therefore there is an indirect cost.
We’ve all been there. Once the resignation has been handed in, it’s only natural that the level of commitment is lowered (to varying degrees according to the individual of course!). Given that accumulated personal leave is not paid out upon termination, many employees take the period between the resignation and the last day to neutralise their ‘effort versus what’s owed’ equation and will seek to use up some or all of their personal leave entitlements. It’s frustrating but it happens, so it should be factored into the indirect costs of turnover.
Ever heard of presenteeism? It’s kind of similar to absenteeism, but only these employees are present in the workplace. A resigned employee who is showing signs of presenteeism can actually be more damaging than the individual who is absent because although they have decided to offer enough commitment to attend the workplace, they are actually absent in mind, attitude and effort. For example, often their productivity is low due to a mind being firmly focused on the future. They are most probably focused on their new job and new life, and organising anything they might need for it such as a new accommodation, transferring novated leases and setting up new phones, signing new employment agreements, researching public transport routes etc. The other issue with presenteeism is that in many instances the employee is attending work out of obligation only and could be fed up and disengaged. Often this translates to constant complaining to other staff, caring less about the customer and quality of work in general and wishing they were somewhere else.
One of the most frustrating costs of employee turnover is when a new employee departs only a few months into their employment. Not only has the employer spent a number of weeks or months recruiting the new person, but a number of months has passed with them in the role also. It’s most often a case of going back to square one and doing it all over again. Wasted time is wasted money.
Where productivity is lowered, it’s inevitable that revenue will follow.
Now that the true cost of employee turnover has been explained, let me talk about what employers can do to reduce their turnover.
Converting your workplace into a futurist Google like work space with ping pong tables and power nap centres sounds cool, but is not the solution. There is however a number of basic human resources concepts that an employer can adopt to better retain their staff.
Before continuing further however, it is important to highlight that there is what I will call essential turnover and non-essential turnover. Essential turnover includes those employees who are not good for your business such are continuous under-performers and toxic personalities. These people are costing you money anyway, so your cost of turnover is probably neutralised. However, non-essential turnover employees are those you don’t want to lose but they leave for varying reasons such as poor leadership, little opportunity for professional development, an unhappy workplace culture, they are not challenged enough, experiencing micro managing, they have a misaligned salary to market, their role expectations are not met, there’s a lack of workplace flexibility, or many other reasons. Generally the reasons above that push good employees to leave are areas that employers can focus on to reduce turnover.
Let’s take poor leadership for example. In my experience, there are very few leaders that couldn’t benefit from some kind of improvement initiative. Activities such as investing in developing your leaders (or yourself) to be more engaging, to communicate better and to practice traits that gain respect from staff will reduce turnover considerably, as will ensuring the right leaders are appointed in the first place. Studies have found that most employees leave their manager not their employer so this is a space that can be improved to create a high impact.
Another example is workplace flexibility. The amount of highly talented staff I have personally seen organisations lose directly due to a lack of workplace flexibility is astonishing. Many of these employers lost a superb employee because they refused to offer just 30 minutes of flexibility during the workday. Whilst it is understood each workplace has different circumstances that need to be considered when offering flexibility, in this day and age with flexibility being a strong pull factor for job seekers, employers are frankly crazy if they are not willing to extend some kind of flexibility to their workplaces. There are many, many ways that flexibility can be offered in the workplace and it is likely that every employer could find something to offer that will both attract talented employees, and also help to retain them.
This blog post has touched on just two factors that might assist employers to improve their employee turnover rates, but there are many more successful strategies that will see great results and relate to common reasons employees resign. Industryus HR can work with employers to achieve better results with their turnover figures. We offer a free initial consultation at your head office, so why not contact us to arrange a confidential discussion.
Call 07 5655 4047 or click here to find out more about our services. Human Resources Gold Coast, Brisbane, Logan, Tweed, Northern NSW and Southeast QLD.