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Employee Turnover Costs and The Importance of the First Year

Why Care about Turnover One of the most underestimated and understudied costs of operation: high employee turnover can negatively impact both the short and long term success of your business.  Therefore, it’s amazing how few organizations are even aware of the costs that they are incurring due to turnover. Recent surveys have show that only 17% of organizations […]

Why Care about Turnover

One of the most underestimated and understudied costs of operation: high employee turnover can negatively impact both the short and long term success of your business.  Therefore, it’s amazing how few organizations are even aware of the costs that they are incurring due to turnover. Recent surveys have 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:

·         Hiring and firing

·         Recruiting

·         Interviewing

·         Orientating, and training new employees

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.

The Significance of Year One 

An interesting fact that actually can be quite useful in helping deal with employee turnover costs is knowing when your employees are leaving. The majority of all turnover– 52%, occurs in the first year of employment. In fact, it actually peaks right at the 12 month mark at 27%. Therefore, when a new employee starts work on their first day, they represent pure cost and a lot of potential.

A time-to-productivity analysis can give you 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.

The point to take away from this data is that your retention strategies should start on day one. Employee engagement, flexible schedules, providing a positive work environment, and setting fair compensation should be implemented and evaluated on a yearlong basis. For example, if your company focuses its recognition and retention strategies on one yearly event, such as an awards dinner, it may be too late to retain a year one employee from looking elsewhere for employment. In order to obtain every employee’s potential; focus on keeping them in the family from the day one.

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