“Success isn’t about how much money you make. It’s about the difference you make in people’s lives.” — Michelle Obama
It’s well-known that employee turnover rates come at a high cost to companies, however do you know the true extended costs and the multiple ways that it impacts on a business? It’s important that successful businesses not only find the best employees, but keep them engaged as well.
Employee turnover can become problematic when it starts to have a negative impact on a business’s performance, therefore it is also essential to understand the reasons behind employee turnover in order to devise recruitment and retention initiatives that reduce turnover and increase retention.
A report carried out by Oxford Economics in 2014 revealed that replacing members of staff incurs significant costs for employers: £30,614 per employee. There are two main factors that make up this cost: the Cost of Lost Output while a replacement employee gets up to speed and the Logistical Cost of recruiting and absorbing a new worker. This figure will have increased significantly over the last 2 years. According to a further, more recent study by the Society for Human Resource Management it costs approximately six to nine months on an employee’s salary to replace them in terms of recruitment and training.
So what are the costs? A business will suffer both direct and indirect costs when replacing that valued employee. The Oxford report revealed a major cost implication for firms is the lost output experienced during the period of time the new employee getting up to speed until they reach their ‘Optimum Productivity Level’, which takes on average 12 weeks in a small business, however, it can take up to 28 weeks in larger organisations and will vary dependent on the business sector. This is a significant cost in replacing a departing employee.
It must always be remembered that dependent on the sector the costs will reflect the skills required. An employee in the retail sector will cost less to replace than one in the legal, accountancy or IT fields. However, the associated costs incurred by replacing that valued employee are relative and fundamentally affect the bottom line no matter what the business and each employee is as valuable as the next.
Your direct costs will include the expenditure associated with finding the replacement and will include advertising, recruitment agency fees and temporary workers. There are also costs in terms of time required to undertake CV sifting, interviewing prospective candidates, candidate elimination and notification.
Advertising the position will take both time and money, with most job boards charging significant fees and your HR having to monitor the adverts, sift the prospective CVs and respond accordingly. This can be outsourced to a recruitment agency, which will save time but involve higher costs, with the agency often charging a percentage of the first year’s salary in fees.
Once you have sifted through the CVs and chosen the candidates suitable for an interview, the process begins. Interviewing is time consuming and often monotonous. Many companies use assessment centres, psychometric testing and often have a tiered interview process to ensure they are recruiting the right candidate for their business. It is essential to chose a candidate who is keen to grow with your business. This process takes time, and while the interview panel are interviewing they are losing productivity time for your business.
Your indirect costs will include time taken for onboarding and the lost time of those involved with the induction and training processes. Training an employee is often a long process and can take more that one employee away from their role, resulting in colleagues having to take on their workload. This can not only have a financial impact on your business but also impact on morale and productivity.
The new employee will not know how the business operates and therefore problem resolution will take time and the new employee will not be able to facilitate questions and queries being asked of them. Whilst this is not so much of an issue internally, it can become an issue for a customer or supplier who is waiting for answers to their questions. This can impact on your business reputation, especially when they have received excellent service from an ex-employee.
Further associated costs will also impact on your business and these include lowered morale and employee engagement when a popular and valued member of the team leaves. Where there is high staff turnover the team often feel undervalued and overworked, and this impacts on motivation and productivity. Always remember that people like to talk – often when a team member or members leave an organisation the rumour mill starts. It can also result in even the most stable employee questioning whether it is time for them to move on too.
So how do you avoid high employee turnover and retain your most valued assets in your business? Employees often value a lot more than money when it comes to their employment. What do you to keep them happy, engaged and thriving in your business? What can you offer them?
Google is seen as one of the leading organisations with exceptional employee retention and engagement rates. Two significant factors for this are their onboard mentoring programs and their culture of transparency.
We are also fortunate at Just Cashflow to have very high employee retention and pride ourselves in our loyal and valued team.
Put together a plan for employee retention that is realistic for you to follow and that speaks to your employees’ needs and wants. In a future article we will be showing you how to do this – subscribe to our blog updates below and we’ll send you an email when the article is published!