Employee turnover is undoubtedly a concern for many companies. What may be even more concerning is that voluntary turnover is on the rise. According to Work Institute’s 2018 Retention Report, one in three employees will quit their current job by the end of 2020. The trend is evidenced by an 11% increase from 2017 to 2018. In fact, this is the eighth consecutive year of rising employee quit rates (BLS, 2018) With this harsh reality setting in, it’s time to look at just how detrimental employee turnover is for your company.
On average, a company can expect to lose 33% of an employee’s salary when that employee leaves. This means that the company would lose $15,000 per employee that earns $45,000 annually. The impact of this loss may be better understood in different terms. Instead of considering what is lost, think about what could have been gained. For the cost of losing three employees, your company could have effectively employed one additional vital employee. Not only does employee turnover cost a company money, but it also hinders efficiency, productivity, and potential.
This HuffPost article displays a great example of the true cost of turnover:
As an example, if you are a 150 person company with 11% annual turnover, and you spend $25k on per person on hiring, $10k on each of turnover and development, and lose $50k of productivity opportunity cost on average when refilling a role, then your annual cost of turnover would be about $1.57 million.
The true total cost of employee turnover certainly does not stop at a monetary value. Turnover will undoubtedly affect a company’s efficiency. Consider the length of time for a new employee to reach his or her potential. This could take up to two years, along with potential mistakes and errors along the way. The old saying “time is money” is not lost in this case. No matter how well-oiled of a machine your company is, employee turnover will inevitably slow it down.
It is also important to consider how employee turnover can affect the climate in an organization. Naturally, employees that watch their colleagues quit will most likely question their own commitment to a business. They may think:
Is there better opportunity elsewhere?
Should I explore my options?
Can I see myself here for the long term?
Am I really happy here?
The more employees that leave, the more questions may arise amongst those who have stayed. This snowball effect is a dangerous path to start.
Any organization with a vision for long-term success must take the necessary time and effort to curb employee turnover. Human resource leaders must be determined and committed in leading this venture for the future of their company.
Beyond just the monetary value, every HR professional should consider the true cost of an employee voluntarily quitting:
- Hiring and onboarding costs (advertising, interviewing, screening, training, HR/management time)
- Costs of training
- Productivity dips (it could take a new employee years to reach the productivity level of an existing employee)
- Team engagement dips (other employees who see high turnover disengage and lose productivity)
- Customer service woes and increased errors (new employees take longer and are often less adept at solving problems)
So how can we increase employee retention? Maslow’s hierarchy of human needs offers a great insight into employee happiness. By offering a caring and safe work environment, ability to work towards a greater purpose, and an opportunity to grow professionally, your employees will feel appreciated and valued. Beyond looking to Maslow for guidance, the answer is typically straight forward. Try to create an environment where people actually want to come into work every day. For more tips on reducing employee turnover, browse our other posts!
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