Direct and Indirect Costs
One of the most underestimated and understudied costs of operation: high employee turnover. It can negatively impact both the short and long-term success of your business. It’s surprising how few organizations are even aware of the costs that they are incurring due to turnover. Recent surveys show that only 17% of organizations are aware of the direct employee turnover costs. When it comes to indirect costs, that number drops to 9%.
In traditional calculations of employee turnover costs, employers take into account the costs of:
- Recruiting and hiring costs
- Onboarding and training new employees
- Termination and severance costs
These costs alone can reach into the thousands, but the true high employee turnover costs lie in the hidden costs. Hidden costs include, but are not limited to:
- Loss of productivity
- Loss or reduction in business
- Expertise loss
- Administrative costs
These hidden costs can impact your business beyond measurable financial loss. In particular high turnover could result in dissatisfied customers, and in turn, reduce revenue streams.
Mitigating Employee Turnover Costs
About 52% of employees leave within the first year of employment. In fact, it actually peaks right at the 12-month mark at 27%. One way to mitigate employee turnover is being able to gauge when an employee might leave. This can help you start using strategies to retain the employee, and calculate the costs of that employee leaving.
A time-to-productivity analysis can give you an idea of loss costs. The analysis is an indication of when an employee’s productivity has increased to a point where their contribution exceeds their cost. For example, if threshold productivity occurs on average at the six-month mark, anyone who leaves with less time on the job is to some degree, a financial loss.
Seeing that employee turnover is likely to happen within a short amount of time, it’s important that your retention strategies are strong from day one. Employee engagement, flexible schedules, providing a positive work environment, and setting fair compensation should be implemented and evaluated at least on a yearly basis.