Witherby Point Consulting Inc.

The True Cost of Employee Turnover...

It’s well-known that employee turnover rates come at a high cost to companies, however very few discuss the true extended costs and the multiple ways that it impacts the business. It’s important that successful business not only find the best employees, but keep them engaged as well.

First, let’s take a look at the hard costs of high turnover. What is a company going to spend in order to compensate for low retention rates? According to a study by the Society for Human Resource Management, employers will need to spend the equivalent of six to nine months of an employee’s salary in order to find and train their replacement. Doing the math, that means that for an employee salaried at $60,000 will cost the company anywhere from $30,000 to $45,000 to hire and train a replacement. Other research show that the average costs could be even higher.

In a study conducted by the Center for American Progress, the cost of losing an employee can cost anywhere from 16% of their salary for hourly, unsalaried employees, to 213% of the salary for a highly trained position. Based on this study, an executive making $120,000 a year translates into a loss of up to $255,600.

Why does losing an employee cost so much, and in what other ways do high turnover rates impact a company?

1. The Cost of Training and On-Boarding

Employee training is expensive. Training seminars and classes can cost a business thousands of dollars, and they can also result in the understaffing of other departments, as training sessions will often need to be led and monitored by other company employees. This results in lower productivity, and the overworking of other employees making up for those who need to conduct training.

2. Interview Expenses

Conducting interviews is a long and tedious process. Many expensive mistakes are often made picking the wrong candidate. To lower turnover rates, businesses must ensure they are hiring the best candidates for the job, stable career-focused individuals who will want to stay and grow with the company. The interview process takes up valuable time, with company leaders needing to take time out of their day to conduct meetings. Time spent interviewing costs the business thousands of dollars by way of lost productivity.

3. Advertising Costs

Posting ads to promote vacant positions are expensive. Most job boards charge a significant fee to advertise vacancies. Hiring a good external recruiter is a great way to decrease time on the task at hand, however, it often comes at a cost of up to 25-33% of a senior position's one-year salary.

4. Lowered Engagement

High turnover rates will invariably lead to a loss of engagement on the part of remaining employees which in turn creates an overworked and unmotivated workforce. This factor alone may signal the impending doom which lies ahead for a company if management does not address the issue with a sense of urgency.

5. Productivity of New Hires

According to business expert Josh Bersin, of Bersin by Deloitte, a new employee can take up to two full years to reach the same level of productivity as an existing staff member. The workplace can be thought of like a blended family. New players coming into the ‘work’ family can be a lot of fun, however, it can often riddled with unexpected challenges, turf wars and feelings of displacement. This is where an experienced human resources professional on staff can steer the workforce towards a path of harmonious inclusion. The investment made to keep a seasoned HR professional with exceptional relational skill sets on staff will pay for itself in the long run. 

6. Impact on Morale & The Gossip Machine

The company gossip machine is triggered every time an employee leaves. Remaining staff can't help but wonder about the circumstances surrounding the new vacancy. If the reason happens to be higher pay, other staff may follow suit in search of higher compensation. According to Forbes, employees can expect, on average, an annual raise of 3 percent. Finding a new position elsewhere often results in a 10 to 20 percent increase in remuneration. Market forces will prevail and translate into increased costs for company owners trying to stem a possible exodus. Additionally, if employees leave on a negative note, rest assured that they will share their thoughts and experiences with the remaining staff and this, in turn, will affect company culture, morale and will have a serious and definitive impact on overall productivity.

7. Less Effective Service

New hires generally don't know the answers to typical questions they are faced with on the job. It takes them longer to resolve issues, and results in lower customer satisfaction ratings.

Professor Jonah Rockoff, a researcher at Columbia University, illustrates that mentoring not only reduces employee turnover, but also improves the skills of new employees, increasing the amount of productivity that you will see in the newly on-boarded staff members.

After studying the habits of students in New York City schools and how they performed with and without mentors, Rockoff found that students who received mentoring had improved performances out of all of the students observed, and that they had a lesser chance of dropping out than students who were not mentored.

These observations can be applied to business. Rockoff states that when an employee receives specialized attention and training from a mentor, they will perform better on the job, and will likely remain with their new employer. This concept has been field tested and proven by corporate giant Google, who has one of the lowest employee turnover rates in the world, and has one of the most effective mentoring programs available.

As readers can deduce, there are many costs associated with employee turnover and there are a multitude of ways to combat it. Mentoring, is one of the most effective, cost efficient ways to increase employee retention rates.

Article sourced from Julie Silard Kantor, HuffPost contributor and edited accordingly by WPC staff.