The Real Cost of Employee Turnover (And How to Stop It)

Employee turnover refers to the number of employees who leave their company roles over a set period; monthly, quarterly, or annually. Businesses can see either volunteer or involuntary turnover. 

With a voluntary turnover, staff willingly leaves either by resigning, quitting, or retiring. Involuntary turnover is the number of workers asked to leave due to layoff workforce reductions, or termination. 

Turnover is necessary for workers in some cases and companies as each evolves. The employee may want to move on to something different as they grow and change, while business leaders strive for fresh perspectives to help the company thrive.

Voluntary turnover or what many companies see as detrimental losses can not only risk a business’s reputation but financially drain the organization. What are the real costs associated with employee turnover – let’s learn.

The Genuine Costs Associated with Employee Turnover

Still in the current business landscape, even more so maybe, employee turnover is a steady challenge for businesses, impacting staff strength and the company’s long-term goals. 

The statistics according to Forbes indicate that roughly half of today’s workforce has changed their positions at least once over a five-year period. This growing trend shows that qualified candidates are open to changing roles if a better opportunity arises.

This puts added pressure on an in-house HR team. Alternatively, more business leaders are choosing to compare options when it comes to taking a more retention-focused approach to company operations. 

Outsourcing to a third-party source specializing in employee retention can lead to smoother workflow, stronger teams, and fewer business disruptions. 

These proactive strategies are helpful and necessary in today’s competitive workforce, helping reduce turnover, while protecting internal security, supporting innovation, and instilling a positive customer experience.

Direct costs

Direct costs are visible expenses businesses face when workers leave, and companies need to find a replacement. While these costs are relatively straightforward and simple to track compared to indirect expenses, they take a major toll on the budget, especially when turnover is frequent. Direct costs:

• Advertising and job board fees: Many businesses often pay to post new positions on career sites, job boards, and social sites. The advertising expenses quickly rise when multiple positions are vacant.
• External recruiter fees: When outsourcing hiring, agencies generally charge fees based on a percentage of the new employee’s salary. This expense has a significant financial effect, particularly when the business sees high turnover rates.
• Screening and interviewing: Internal HR departments spend much of their time reviewing candidates’ applications, conducting interviews, and coordinating new hires. This isn’t necessarily billed directly, but the time pulls these resources away from core company operations.
• Onboarding materials and training programs: Once the hiring process is complete, onboarding involves providing printed materials and training tools. Trainers and team leads spend time and utilize the company budget to prepare these staff members for their new roles.
• Equipment and software setup: Time and cost implications come with the setup of in-office roles to include things like the worker’s desk space and software licensing.
• Contractor or overtime coverage: Companies often rely on staff overtime or short-term contractors when they have vacant positions in order to manage productivity. This is often more costly than permanent workers.

Indirect costs

Indirect costs are not immediately visible in the same way direct costs are but still have a comparable effect on a company’s budget.

• Loss of productivity: It can take new staff considerable time to achieve full productivity, depending on their position’s complexity. Businesses must absorb these productivity gaps with teams covering the vacancies and experiencing increasing workloads in the interim.
• Reduction in engagement and morale: The staff left behind after someone leaves their position feel uncertain about their roles. Their energy is drained, and their morale is affected. Typically, there’s less of a connection to their work for a period of time.
• Customer impact: In customer-oriented positions, turnover disrupts quality and consistency in the role. Customers notice repeated introductions, delays, or missed follow-ups. This can damage credibility, hurt trust, and cause customers to switch to a competitor.
• Loss of institutional knowledge: Experienced employees are knowledgeable on the customers, the systems, and internal processes, expertise that even top talent coming onboard would need time to develop. When seasoned staff leaves their positions, their skill set goes with them.

Final Thought

Reducing employee turnover is ultimately beyond just an HR priority but becomes a strategic business plan that can directly impact the company’s financial health and determine the customer’s experience and overall satisfaction. 

Go here for strategies to reduce employee turnover. How does leadership today address turnover and retention? 

Moreover, business leaders are outsourcing to HR experts who specialize in employee engagement and retention. These specialists are changing the landscape, reducing turnover, helping organizations hold on to top talent, and save on budgetary expenses. The investment saves money over the long term.

Related: The Modern Hiring Process: How Technology Shapes Recruitment