The Cost of High Employee Turnover

The Cost of High Employee TurnoverThe Cost of High Employee TurnoverEmployee turnover is usually expressed as a ratio and are usually calculated for a company on a yearly basis, so it would be the number of employees who left during the entire year divided by the total number of employees at the beginning of the year. If a company has 100 employees and two of them leave, the turnover rate is two divided by 100, or two percent. Thats pretty a pretty low turnover rate. If a company of five loses two employees, thats a forty percent turnover rate (2/5) and thats a pretty high turnover rate. You can also calculate the turnover rate for any smaller unit of the company in the saatkorn manner. If two accountants left from a staff of 8 the accounting turnover rate would be 25%. If 3 salespeople left out of a team of 15 the sales turnover rate would be 20%. And if those two departments were the entire company, the company turnover rate would be five left divided by 23 total employees or rough ly 22%. Employee Turnover Cost Employee turnover cost is usually defined as the cost to hire a replacement employee and train that replacement. Often the training costs are only those to get the new employee productive, but they should include all the costs of getting the new employee to the same level of productivity as the employee who left. These costs include both direct costs like the fee paid to a recruiter to find candidates for you as well as indirect costs like the business you lost because you didnt have the capacity to handle it all while you were short-staffed. Generally, the higher your turnover rate, the higher both your direct and indirect costs will be. And as the turnover rate increases, the costs will increase faster. Hiring Costs There are direct and indirect costs associated with hiring a replacement for an employee who has left. If several employees have left, there may be some small savings in certain categories from economies of scale, but that is a sm all part of the total cost. Hiring costs include Recruiting CostsFees paid to outside recruitersAdvertising costs if you have to place an ad for a specific stelle or even for the company itself when recruiting for several positionsInterview costsTravel costs to candidates to visit the company for interviewsTravel costs for your staff to go to a recruiting fair to source candidatesTime for your Human Resources (HR) staff and hiring department staff to interview candidatesPost interview costsTime to check references and credentials from candidates who pass the screeningsPre-employment skills testing you may need or want to administerPre-employment screenings for drugs, etc. Employment costsSigning bonuses, if paidRelocation expenses for the prospective employee and their family Training Costs Training costs include both direct and indirect costs, just like hiring costs. After you have incurred all the hiring costs discussed above, you have plus-rechnenal costs to train the new emp loyee. Even when you hire highly qualified, very experienced new employees there are always training costs. If nothing else, they have to be trained in the way your company does things. And these training costs continue to add up until the employee is trained to the same level of productivity for the former employee they replaced. Training costs include Time for people to train them. This would include training them in the companys practices as well as the duties of their individual job.Training materials. These will have to be prepared or, if they exist, reviewed and updatedBenefit enrollment. HR has to explain the benefits to the new employees and give them the enrollment forms to fill out or help them fill them out.Accommodation costs. These include any special equipment or supplies the individual may need, either from a personal preference (like a specific type of chair) or to accommodate special physical or mental needs. Administrative processing. In addition to the time for H R to process the new employee, Accounting will need to get them onto the payroll. The Information Technology (IT) department will need to issue computer equipment and get them into the email system, set up their username and password, etc. Opportunity Costs Opportunity costs are the costs of opportunities you couldnt take advantage of- the cost of business lost because you didnt have the people resources to do all the work while you were shorthanded. This might mean incoming calls not answered before the caller hung up, sales calls not placed to prospective customers, or trade show appearances canceled because no one was available. These costs can be hard to measure, but they are real. And finally, dont overlook the cost of reduced morale from other workers having to cover the workload of the employee left from the time the employee starts slowing down because they know they are leaving until the time the replacement is hired, trained, and up to speed. Bottom Line Employee t urnover carries a high cost, and the higher the employee turnover rate the higher the cost. Smart companies work hard to measure employee satisfaction and act to minimize turnover. It is cheaper to keep your current employees motivated and productive than it is to find, hire, and train new ones.