Jul 282010

Many employers are facing turnover issues that they may not have had to deal with in the past. Some of the turnover is downsizing due to a tough economy. That type of turnover is not the common turnover that employers deal with consistently. It is usually a one time issue and hopefully will go away as the economy turns around.

The turnover I’m talking about is the “revolving door” of employees being hired, staying for a little while, and then leaving. This type of turnover can be symptomatic of a deeper, organizational problem. Some employers say, “So what. Turnover is inevitable and if the employee doesn’t want to stay, they should leave.” These employers don’t seem to understand how costly turnover is or care about the reasons for the turnover – which can also be costly.

Turnover affects your bottom line, whether you see it or not. Turnover is a silent but effective profit killer.

There are two areas of costs associated with turnover – Hard Costs and Soft Costs. Some of the hard costs that you can fairly easily identify are:

  • Wages of employee that is leaving
  • Cost of advertising
  • Cost of benefits of departing employee

But there are also other hard costs associated with the departing employee:

  • Employee’s supervisor/manager pay rate (they will most likely be covering for the departing employee)
  • Administrative staff pay (they are spending time filling out paperwork, answering questions, completing the termination process)
  • Coworker’s pay rate (they may be called on to work overtime to cover the departing employee or temporary workers may be contracted to cover the work)
  • Interviewing (takes a lot of time to conduct a series of interviews and you need to pay the interviewer – no matter what staff member(s) are conducting the interview)
  • Reference checking (either you do your own reference checking and pay your staff a wage or outsource and pay the outsourced company – there are fees involved)
  • Drug testing (if applicable there are fees for drug testing)
  • Orientation and on the job training (someone conducts the orientation, prints manuals and forms, answers questions, trains the new employee)

These are examples of hard costs associated with turnover. There are also soft costs, which may be more difficult to quantify but need to be addressed, including:

  • Loss productivity of employee (usually the exiting employee performs at 50-75% of norm)
  • Loss productivity of coworkers (time spent gossiping or taking on additional work load which may upset them)
  • Loss productivity of supervisor/manager (having to spend time dealing with employees and answering questions)
  • Productivity lost if position remains vacant (may increase overtime, temporary services, time spent filling in, supervisor/manager time spent on scheduling issues)
  • Lost productivity during training (new employee requires support and direction, existing employees may be distracted, supervisor/manager spends time with new employee)

If you look at the true cost of turnover, you may be surprised at just how costly it is to your bottom line. If you haven’t hired smart and there is not a good match between the company and the employee, you will eventually be a statistic – a company with high turnover. The old adage really is true – employees don’t leave companies, they leave managers. Look at why the turnover is happening and hopefully you will be able to put a stop to the Hard and Soft costs of turnover.

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  16 Responses to “Understanding Employee Turnover”

  1. I’m continually puzzled at how many otherwise smart and successful business owners miss the points you’ve so clearly articulated here. If they truly comprehended the total cost (hard and soft) you’d expect behavior consistent with a greater emphasis on retention. In my experience and I suspect yours too, most departures are easily preventable and the required measures are rarely costly.

    You’ll find a closely related article posted on February 7, 2010 “The Hidden Costs of Turnover”. Another article, “Where Have All The Good People Gone?” focused on why people leave can also be found there,

    Thanks for the interesting post Lola. I hope more employers will be convinced that effort spent on retaining staff is well worth it – and not that difficult!
    Rick Ross recently posted..Is Listening Leaderships Most Critical StepMy Profile

  2. Great insights Lola. Savvy companies know that when they hire people and help them grow and feel fulfilled they will get long-term returns. The challenge is for companies to realize that when they invest in the well-being of their employees by providing opportunities for growth and job satisfaction it also affects their bottom line in real ways. Businesses make more money long term from happy employees than from an ongoing revolving door. We tend to complicate this point but it is as basic as asking someone, “Are you happier in a place that treats you well or one that sees you as expendable?”

  3. The relationship between job satisfaction and employee turnover is one of the pathways to better understanding employee turnover–organization linkages.

  4. Great post Lola, you’ve raised some excellent points. I agree with the comments left by Rick and Guy as well – a lot of companies just sort of gloss over the cost of turnover and treat employees as interchangeable parts. This is not strategic hiring and costs the business an unnecessary amount of money. Many hiring decisions are based primarily on instinct and skills but do not take a quantitative look at the employee’s ambitions. HR managers need to use both quantitative data AND their instinct when hiring to identify a better fit between the employee and the role. This will reduce turnover and help the organization save money.

  5. Everything you’ve said is true, but I think there is one additional aspect that needs mentioning.
    Employee turnover is never going to be eliminated entirely, nor would you want it to be. It keeps a level of “fresh blood” in the organization, which can contribute to an improved culture and innovation.
    Daniel Rose recently posted..The Much Misunderstood Organisational LearningMy Profile

  6. I think understanding an analyzing what is causing employee turnover is the best way to try and avoid turnover problems in the future. If your turnover margin is high you are going to have trouble running a successful business in the long term.

  7. Employee turnover is important to understand but sometimes hard to identify. People get tired of jobs for different reasons but if you can find a pattern you may be able to reduce turnover which will help the companies bottom line.

  8. […] to the industry blog Effortless HR, a consistently high rate of employee turnover is both costly and indicative of an entrenched […]

  9. Some of the larger entities that we come into contact with on a day to day basis face similar issues. It would be best if we could present our clients HR staffs with simple software to track data that could be presented to the decision makers. That might help change their minds. What do you suggest?

  10. Even large organizations have found that our program, EffortlessHR, provides them with easy to use tracking of data. You may want to check us out.

  11. […] are hired, they stay for a little while, and then leave. This results in a high turnover rate. A high turnover “can be symptomatic of a deeper organizational problem.” And because of the high costs of […]

  12. […] to Lola Kakes of Effortless HR, there are two main groups into which the costs can be placed: hard costs and soft costs. The hard […]

  13. This post is an eye opener to all employers who think that they can hire and fire somebody if they want. Soft and hard costs are still costs and the truth is, big money are spent to hire and fire employees. The challenge lies to the owners to consistently make sure that they make their employees happy and productive.
    Career Choice recently posted..3 Simple Things You Can Do To Strengthen Your ResumeMy Profile

  14. No company wants to endure a high employee turnover. A great strategy for keeping employee morale high is simple: make them a part of the team. Let all employees feel they have a say in bigger company decisions by weighing their opinions on certain issues. For example, let’s say your company is purchasing new software. That’s an entire new system most of your employees will have to learn. It’s surely to affect their daily well-being, how fast they can do their job, etc. While some larger companies might not be able to include all lower-level employees into a decision like that, they can create a selection team with someone representing their viewpoints on what they’d like done.

    My example only covers one aspect of understanding employee turnover and why keeping employee’s good-spirits is essential, but it goes to show giving people that sense of importance in the company can go a long way.
    Russ recently posted..Best Practices for ERP Selection TeamsMy Profile

  15. A well written article on Employee turnover. There can be many reasons for high employee turnover and the main reason should be investigated. The health and beauty industry has a high turnover
    Mel recently posted..TRESemme 2804BU Volume Curl Wand ReviewMy Profile

  16. The cost of replacing staff and training them can prove to be very, very expensive and time consuming. Your list above certainly helps the reader to better understand the true costs of employee turnover, this money would be better spent developing, training and motivating existing staff to improve morale and reduce attrition rates.
    Claire Greenhow recently posted..Include Qualification Acronyms on your Linkedin ProfileMy Profile

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