Employee turnover is an expensive indicator of deep organizational issues. It can signal issues with quality of hire, culture, management, onboarding, and any other aspect of your employee experience.
77% of turnover in 2019 was voluntary—which means 77% of employee turnover could have been prevented. To take control of your budget and your culture, you need to get a handle on turnover ASAP. Let’s discuss:
- How to calculate employee turnover
- The financial impact of employee turnover
- Potential causes of employee turnover
How to calculate employee turnover
Employee turnover is one of the easiest HR metrics to calculate. All you have to do is divide your organization’s amount of employees by the number of departures. Easy, right?
Calculating the financial impact, however, is more complicated.
The impact of employee turnover
Employee turnover has a significant impact on morale, ROI, and productivity—which come together in a perfect storm of financial impact.
1. Recruitment costs
Finding a new employee is no walk in the park. It requires investing in advertising, the selection process, and onboarding. This ordeal can be very expensive, but companies tend to underestimate the cost (usually by 90-95%) because they see it as part of the day to day for Human Resources. However, the HR department is put to better use when helping current employees develop within the company and driving engagement, rather than looking for replacements.
(Want to learn more about HR metrics? Check out our guide to metrics that matter)
2. Lower productivity
Let’s say your company has invested in the recruiting and selection process, and you have filled the vacancy in record time. That’s the end of the cost of hiring a new employee, right? Not quite.
A new employee can take up to 1-2 years to reach the level of productivity of an existing one. It takes time for them to learn the tasks and processes required for the job, not to mention for them to feel comfortable and confident in it. On the other side of the coin, it takes a while for managers to get used to a new employee too, figuring out their skills and how best to apply them.
3. Stretched resources leading to burnout
During the time it takes for your company to find the right candidate and hire them, someone else has to get the job done. Usually, the responsibilities and workload held by the former employee fall on the existing team or a contractor. This means that either the existing team has to stretch themselves more to meet deadlines and achieve goals—which can result in burnout and low engagement—or you have to hire in temporary talent, which can be costly too.
4. Training costs
The training of a new team member, as with the adjustment period, costs you time and money. Courses, software training, meetings, feedback sessions, double-checking the new employee’s work: while not all of these costs appear on the balance sheet, many take time out of another productive employee’s day.
However, this isn’t the only cost you have to add to the equation. What about the lost cost of the previous employee’s hours of training and the resources invested in them? Over a period of 2-3 years, a company can easily invest 10-20% of an employee’s salary’s worth in training. This is money that walks out the door with the departing employee and can’t be recovered.
5. Cultural impact
When team members see more and more of their colleagues leaving the company, it affects their satisfaction and engagement, and, therefore, their productivity. It’s one of the more intangible costs of employee turnover, but it’s not less impactful.
It’s important therefore to foster an environment of security and satisfaction to help teams thrive. Engaged employees stay with you longer and work harder; this is one of the ultimate money-savers when it comes to running a business.
Employee retention is key to long-term productivity and success, so the longer you can keep employees engaged, the better for your bottom line. A company that hires the right people and invests in their development and engagement is bound to have a positive organisational culture that delivers results. This is why employee engagement should be a priority.
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Potential causes of employee turnover
Employees leave organizations for a number of reasons. According to Work Institute, turnover causes include:
- Total compensation (salary, benefits, etc)
- Onboarding
- Leadership
- Learning and development
- Growth and advancement
- Wellness and work-life balance
Employee turnover can result from any and every aspect of your culture and organization. Addressing turnover will help you improve your employee experience and retention.
