How to Measure The Real Costs of Employee Turnover

Employee turnover is expensive —  more so than you might think.  Some costs are easily calculable, such as  the costs of recruiting, hiring, and onboarding;  while, other costs can be difficult to measure, like what’s the impact of a termination on employee engagement?  However, a recent survey conducted by the Society for Human Resource Management tried to quantify the cost to replace an employee and found that the average cost-per-hire is $4,129. Moreover, SHRM has also done research showing direct replacement costs of an employee can reach as high as 50% - 60% of their annual salary depending on the level of seniority, the importance of the position to the employer, and the industry.

Know the Hard Turnover Costs

Some costs of turnover can be measured.  Employers that track and measure costs associated with turnover and employee replacement have a business advantage. A historical understanding of your turnover rate, and costs-per-hire can make it easier to predict future turnover costs. The typical hard cost expenses are:

Recruiting and hiring - These costs include the expenses for advertising the open position, background checks, and any pre-employment testing required. Estimating the internal operational costs and staff time for recruiting and hiring will further identify the cost impact on the business.  This includes time for marketing/posting the job, applicant screening, and interviewing candidates.

Onboarding - Here we have the costs of orientation and training materials, as well as management’s time to provide training and additional supervision to the new employee.

Mitigate Operational Costs of Employee Turnover

Employee turnover happens, and employers should be prepared to understand how a voluntary or involuntary termination can affect the rest of the workforce.  However the soft costs of can end up affecting the organization more drastically than the money to recruit and onboard. Here are some factors to be aware of:

Burden on staff - Having an empty seat means other employees have to pick up the slack. Even after the new employee is hired, it takes time to train new people. The ramp up time for training a new employee varies on position and the individual and will generally keep other employees away from their normal duties while training.  This may even cause additional overtime expenses so that employees temporarily assigned other job duties or responsible for  training the new hire, can still get their own work done.

Productivity loss - Expect productivity to drop even with everyone pitching in and working extra time.  This can go on after the hire, because it will take time for training the replacement, and time for the new employee to ramp up to  the former employee’s level of productivity.  With an average of more than 40 days to fill a position, and longer for the new person to master the role, this productivity gap can be significant.

Mistakes - Errors are likely to increase when employees are covering the duties of their former coworker and when the new hire is learning to do the job.

Disengagement - Employee engagement is likely to be low when turnover is high, and if a terminated employee was well-liked, morale might take a momentary plunge after the termination. Poor employee morale directly impacts their productivity.

Automation Can Boost Employee Engagement

Employers can minimize these costs in two ways, 1) work on strategies to decrease turnover (Employee Engagement); 2)  Streamline processes to identify and hire qualified employees (efficient recruiting, hiring and onboarding).  HCM solutions like OnePoint are changing the way employers recruit and retain employees producing direct impact on productivity and the business performance.

An engagement strategy with technology can increase productivity, focus employees on core job tasks, and enforce policies that promote fairness, professional development.  Businesses that can retain an employee not only avoid recruiting costs ($4,000+ per job requisition), a Gallup study found that highly engaged employees experience 22 percent greater productivity for their companies.   Engaged employees have also been found to produce as much as an 18% improvement in service level and a 28% boost in profitability per employee.

Turnover and attrition are a business reality.  HCM solutions can help businesses of all sizes achieve efficient recruitment and interview processes and boost employee engagement. For more information about OnePoint HCM solutions for your company contact us or schedule a customized demonstration for your organization.