The Real Cost of Employee Turnover

What is Employee Turnover?

Employee turnover happens two ways: voluntarily and involuntarily. Voluntary turnover is when an employee decides to leave an organization. Involuntary turnover is when an employer terminates an employee. Both are incredibly expensive.

What causes employee turnover?

A few common reasons for voluntary turnover include:

• The employee is approached by a company and is offered a better job.
• The employee no longer wants to work for their current company.
• The employee has been actively searching for a new opportunity and gets a job offer.

Some causes for involuntary turnover include:

• Poor performance, due to being the wrong hire or a lack of training
• Violating employee guidelines
• Creating conflict in the workplace

Your organization should always strive to lower your turnover rate. Ways to decrease employee turnover include improving your workplace and investing in better hiring and training processes.

How to calculate employee turnover

One way to calculate employee turnover is to take a cue from the BLS, which defines the quits rate as the number of quits in a month as a percent of total employment. You can use this type of formula to measure both voluntary and involuntary turnover.

Note that for some industries, turnover is expected to be higher. Retail, leisure and hospitality, and accommodations and food service are the industries with the highest amount of quit rates, according to the BLS.

Some reasons for higher turnover might be that your business is primarily seasonal, or you tend to employ younger, entry-level workers. 

The Cost of Employee Turnover

If your business has high turnover compared to your competitors, that means you’re spending more money, time, and energy to maintain a functional staff. High turnover can have a ripple effect and negatively impact your current employees.

Here are some of the costs to be aware of.

The average cost of losing one employee

Turnover costs include advertising for an open job position, how much time it takes to recruit and interview candidates, costs related to background checks and drug screenings, and costs to administer pre-employment assessment tests. There’s also an impact on productivity while a replacement is being recruited and hired, as well as a potential negative effect on company culture and team morale.

According to Employee Benefit News, employers spend around 33% of a worker’s annual salary during the replacement process. Let’s put that into perspective:

• It will cost $12,000 to replace an entry-level employee making $36,000 a year.
• It will cost $20,000 to replace a manager making $60,000 a year.
• It will cost $50,000 to replace an executive making $150,000 a year. 

It’s expensive to replace even hourly employees, as Investopedia reports the turnover of an $8/hour employee can cost a business around $3,500. Companies spend an average of $1,886 and 47.6 hours a year on training for each employee. For companies to reach a break-even point on managers they hire, it takes an average of 6.2 months due to costs incurred.

That’s if the manager even stays at the company that long. Bamboo HR reports 31% of people have left a job within the first 6 months, and 68% of those people left within 3 months.

The cost of high turnover

Now you have an idea of the cost of turnover, which Investopedia reports can reach up to three times the salary of an employee when factors like benefits, taxes, rent, and training are considered. When your turnover rate is high, you also have to pay for things like:

• Damage to your company’s reputation, which makes it harder to attract top talent
• Resentment and burnout, as workers scramble to make up the work of the person they’ve lost
• Internal rumblings, as current employees wonder if they should jump ship, too, which can negatively impact productivity as your current workers start job-searching

High turnover can be extremely expensive for companies and can create a chaotic situation for HR professionals. Staff, reputation management, training costs, and HR hours are all factors in high turnover consideration.  

How does turnover affect a company?

A study published by the European Journal of Business and Management illustrated some of the negative effects of high turnover on employee morale, productivity, and company culture. For example:

• Turnover can harm customer service and quality, which are direct expressions of the company, and cause the company to lose a competitive advantage
• Turnover typically causes lack of motivation and low morale
• A lack of employee confidence and low morale is correlated with lower profits

When an employee leaves involuntarily, other employees might speculate that they’re next on the chopping block, which can heighten anxiety and motivate job searches. They might fear that new hires might outperform them, which can also lead to tension and new challenges among coworkers.

Employees still working for you won’t want to do extra work without being compensated. Employees who see their peers voluntarily leaving may wonder if there are better opportunities out there for them, too. These are all concerns you should be aware of regarding high turnover.

How to Reduce Employee Turnover 

Reducing employee turnover will help your business save money. Turnover reduction can help you keep employee morale high and can improve your business reputation for talent considering your company. 

Fostering a positive company culture, keeping employees engaged and helping employees develop with your company benefits your business in the long run. Here are some tips to reduce employee turnover.

If your organization would benefit from some help in decreasing employee turnover, contact seattle temp agency today. We can provide market insight, competitive compensation data, and staffing solutions that can help your business.