The High Cost of Employee Turnover: What Every Employer Needs to Know

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When employee turnover is low, you will find every corner of your company in a better place – financially, culturally, productivity-wise, the list goes on.

Unfortunately, the statistics are proof that turnover is nearly unavoidable for US businesses. Unless a business is willing to make true change, they will continue to lose profits, productivity, and most detrimental of all, people.

The problem:

  • According to 2018 data from the US Bureau of Labor Statistics, over 3 million employees have left their jobs voluntarily every month this year.
  • In a 2016 survey by SHRM, the average overall turnover rate was 18%. That’s nearly 2 out of every 10 employees in America.

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What are the reasons behind employee turnover?

In a in recent survey by Mercer, the top reasons US employees left an organization voluntarily during the surveyed time period were promotion opportunities, career changes, issues related to benefits, poor fit within the organization or job role, problems with a supervisor or manager, and retirement.

Who is most likely to leave?

Mercer also reports in the United States, Generation Y and Millennials the most likely to leave a company voluntarily, followed by Generation X and then Baby Boomers.

It’s easy to consider your entry-level disengaged employees will be most likely to leave, but an article by Gallup brings attention to another issue for employers. “When your best employees are not engaged, they are as likely to leave your organization as your employees who tend to have performance issues and are unhappy.”

Related: Are Your Employees Mentally Checked Out? Learn what causes employee turnover and how you can encourage your employees to stay.

How To Calculate Your Employee Turnover Rate

You can calculate your employee turnover rate – either monthly, annually, or over the lifetime of your company – with a simple equation.

Total Turnovers ÷ Average Number of Employees × 100 = Turnover Rate

Hidden Costs of Employee Turnover

We wish you could give you a simple equation for estimating the cost of employee turnover, but it’s not so simple. There are a lot of hidden costs associated with employee turnover that employers may not even realize. The cost of employee turnover may include some or all of these expenses: loss of employee productivity; loss of employee engagement; loss of sales; loss of customer service; recruiting costs; hiring and onboarding costs; raining costs; equipment and technology costs; loss of investment in former employee.

Another hidden cost… When an employee leaves, they take their knowledge with them.

There’s a period of time in between one employee leaving and a new hire stepping on board where production may take a significant hit. In a study by Panopto, it was found that 42% of the skill and expertise required to perform a job role will only be known to the current person in that position. This causes a delay in productivity as the new hire is onboarded and trained – having to learn or recreate a large portion of their job role from scratch.

How To Estimate the Cost of Replacing an Employee

Many estimate the cost of replacing a salaried employee as 25% of the annual wage. Some people estimate it will take about 6 to 9 months for a new hire to provide a return on investment. Add this to the loss of production from the previous person in the position, who may have been disengaged for weeks or months prior to leaving. Regardless of how you calculate the cost of turnover, it’s an expense no business owner wants to have.

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The cost of replacing an employee may be greater based upon position and skill level.

The Center for American Progress analyzed 30 case studies on the cost of turnover and found:

Entry level positions, or positions with an annual salary of around $30,000 or less, typically costs about 16% of the salary to hire and train a replacement.

Mid level positions, or those with an annual salary of around $30,000 – $75,000, typically cost about 20% of the salary to hire and train a replacement.

Key positions which require specialized training, or those which are well compensated and have high educational requirements, can be very expensive to replace. It can cost upwards of 213% of the salary to replace an executive or key player of a company.

Based on the numbers from the Center for American Progress above, you can calculate the potential cost to replace an employee by taking into consideration the position level and compensation for a specific job role.

Entry-level: Annual salary × .16

Mid-level: Annual salary × .20

Key position: Annual salary × 2.13

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Solutions for Decreasing Employee Turnover

You can decrease employee turnover by examining and improving these areas of your company:

  • Recruiting Strategy: Rethinking your recruiting strategy can tremendously improve employee retention. At Aliat, we love the Core Values Index, which allows you to create Top Performer Profiles for each job position.
  • Work Schedule: Offering flexible schedule, work-from-home options, or more vacation time can decrease employee turnover. These improve work-life balance and are some of the most sought-after benefits in the US today.
  • Employee Benefits: Improving your benefits offering can bring more value to your employees. Benefits are the #2 reason employees voluntarily leave their jobs. A 2018 survey by AHIP found that 56% of US employees have stayed at their current job because of their health plan, and Gallup reports that 61% of employees would take a job with another company if the benefits package was more attractive.
  • Company Vision: Can your employees clearly articulate the vision and values of your company? 59% of employees don’t know what their organization stands for (Gallup), yet more employees than ever want to feel value in their work.
  • Onboarding and Orientation: Improving your onboarding, orientation and employee training can greatly increase employee retention. 37% of hiring decision makers agree that retention rates would significantly increase if new hires had a more informative hiring/onboarding process (Glassdoor). Poor management and lack of clarity in a job role can have employees feeling overwhelmed and underappreciated.
  • Workplace Culture: Improving your workplace culture can dramatically increase employee retention. A bad workplace culture not only takes a toll on employee retention, but also presenteeism, mood, and quality of work.

Aliat helps small and midsized businesses improve employee engagement and retention.

We believe employees are a company’s most valuable asset. We help businesses improve employee engagement through healthy business methods in recruiting, onboarding and orientation, human resources, employee benefits, and company culture.

If you’re a business owner concerned about your turnover rate, request a consultation and speak with one of our business pros free of charge. We can help uncover pain points in your business and get you on the right path to employee retention.