Blog

What Is High Employee Turnover Costing your Business?

Written by Derek Carlstrom | December 4, 2020 at 3:30 PM

According to the Bureau of Labor Statistics, the total number of employee separations reached around 5.5 million this year. The number includes layoffs, quits, discharges, and other types of separations. While the number was lower than in previous years for specific industries, others saw a continuing trend in turnovers, and many businesses have seen the effects. 

Turnover has its own costs, but high turnover comes with certain tangible and intangible costs that make it an even bigger problem for businesses. If you're experiencing high employee turnover, you may be paying in ways you don't realize. The following are some of the most significant costs associated with high turnover rates.

Tangible Costs

The tangible cost of employee turnover can be steep, depending on the turnover rate. Generally, it's believed that the overall cost of employee turnover is around 1.5 to 2 times the employee's salary. The cost also varies depending on the seniority of the employee. For example, while losing an hourly worker can cost as much as $1,500 or more, it can cost up to around 100-150 percent of the salary of an employee with a technical or supervisor position.

This calculation considers the "cost-per-hire" but not the "cost-of-vacancy" (COV). It can be a challenge to measure the overall effects of a vacancy when it comes to productivity, employee morale, and engagement, which are more intangible. Cost-per-hire is a bit more easily calculated based on the more tangible costs of hiring and onboarding new candidates.

Hiring Costs

Throughout the hiring process, businesses will need to spend money on advertising for new positions on various platforms. This could entail paying for job postings on Indeed, LinkedIn, ZipRecruiter, and many other locations. 

Businesses then need to cover interviewing and screening costs to make sure they find the right employee.

More importantly, there are opportunity costs to having employees spend time on the hiring process.

Onboarding Costs

The costs of onboarding a new employee after the hiring process could include training and management time. Costs can also depend on whether you train people manually or spend time developing a comprehensive training resource for new employees. For example, it can take months and involve many team members to contribute to videos or text guides that you might consolidate in an employee portal. On the other hand, manual training can also consume a lot of time and effort and detract from the trainer's other tasks.

Lost Productivity

In addition to hiring and onboarding, lost productivity can be another cost experienced with a new hire. It can take years for a new employee to reach the same productivity level as the employee who left. The team needs to adjust to their new partner. This can lead to less overall productivity.

Intangible Costs

Apart from tangible costs associated with high turnover, there are individual intangible costs. These can put your brand behind and make you less competitive while leading to even higher turnover. It's essential to mitigate turnover rates if you want to maintain a healthy business and encourage people to join your workforce.

Employer Brand

High employee turnover can severely hurt your employer brand if people see that you have poor employee retention. The more people leave your company, the less likely others are to consider you as an "employer of choice." This could make the hiring process even more strenuous as you struggle to attract eager and qualified prospective employees.

Employee Morale

A weaker team also means that employees who stay are more likely to suffer from that sense of loss. When an employee leaves, particularly a well-liked or long-time employee, other employees will lose a friend and familiar colleague who's likely become more like family. A high turnover rate means that employees will generally be less likely to be attached to the company through colleagues they enjoy seeing every day.

At the same time, apart from experiencing loss, employees could also become worried that they'll be the next ones to be fired. Fearful employees will also make for a more unpleasant workplace. Employees who fear perceivably inevitable layoffs may also begin to jump ship and search for new opportunities, even if you don't intend to fire them.

Weakened Company Culture

High turnover can also lead to other disruptions that increase the likelihood of other employees quitting. Employees won't feel as connected to your business as part of a healthy and well-maintained team. Instead, employees are likely to see a weakening company culture that treats employees as little more than expendable assets. Employees may want to maintain some distance from the company and begin to seek a healthier company culture with another brand. 

Keep Turnover Rates Low to Reduce Costs and Create a Healthier Company

Turnover may be inevitable, but it's essential to do what you can to avoid high turnover rates. Taking steps during the hiring process to find the right employees, providing an appealing benefits package, and other efforts can help you retain employees and develop a strong company culture. Subsequently, you’ll wind up with less vacancies and spending less money while maximizing productivity among your workforce.