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.