5 Costs of Employee Turnover

The cost of employee turnover is higher than you think. Employee attrition or the inability for an organization to retain talent can be costly for businesses in more ways than one. While the direct costs associated with finding and hiring new employees are well understood, such as job posting and recruitment fees, there are several hidden costs that can cause an even greater impact on a company’s bottom line.

1.  Lost productivity

An employee leaving the company often means the organization is taken by surprise and left unprepared to immediately find a replacement. In this scenario, the organization must find a way to continue to operate for a period of time with fewer employees while achieving the same productivity goals. Existing employees may not be able to pick up the extra slack of a very productive employee. 

2. Employee burnout

When organizations are understaffed, the risk of burnout for the employees that are left behind increases. In fact, employee turnover is one of the main reasons cited in surveys on the topic of employee burn out. Burnout due to understaffing can lead to more unexpected attrition as employees may be afraid to speak out for fear that doing so will cause their employer to question their competence. This can leave employers blindsided when burnt out employees abruptly quit which only perpetuates a vicious cycle of understaffing and burnout.

3. Lost tribal knowledge

Along with losing the extra productivity associated with an employee, the company also loses the expertise and on the job training that they take with them when they leave. This is often referred to as ‘tribal knowledge,” because this information isn’t known by other employees or effectively documented in a way that can be easily referenced by the replacement employee. Tribal knowledge is incredibly common even in organizations with strong documentation cultures and ample resources to train new employees. When workplace knowledge is lost, it is costly for businesses as employees must take time and effort rebuilding this same knowledge in order to perform in their roles.

4. Wasted time and money associated with hiring a replacement

The hiring process is generally considered to take an average of eight to twelve weeks. A basic rule of thumb for the cost of recruiting and replacing an employee is considered to be at least twice the amount of the individuals salary and can be more depending on the level of the position. Depending on the size of the company, the same employees who are covering the work of the lost employee may also need to participate in the recruiting or interviewing process which can take a significant amount of time.

5. Cost of training/Risk of mis-hire

After a recruiting process is completed and an organization has found a backfill it is time for onboarding. Employee onboarding is an expensive and time consuming endeavor. Most experts agree that the onboarding process takes around three months. Onboarding requires participation from both HR and existing employees across the organization. In reality, the length of onboarding varies and can take six to twelve months in some roles. There is always the potential for a mishire with the introduction of any new employee, and the costs and risks associated with firing that employee and hiring for their replacement.

Conclusion

Companies can greatly reduce employee turnover by focusing on creating a positive culture with competitive pay, offering a strong work-life balance atmosphere, growth opportunities, employee recognition and effective management with open feedback. Investing in effective onboarding and aligning your hiring practices with the company’s values can also significantly improve retention. To put it simply, happy and valued employees are more likely to stay long-term.