Eventually good and bad employees come and go. No matter how great your company is, people will leave at some point. Employee turnover is inevitable, and it’s accompanied by costs due to the person leaving, the need for replacing the worker, training, productivity lost in the interim period, and other.
According to Lola Kakes of Effortless HR, there are two main groups into which the costs can be placed: hard costs and soft costs. The hard costs that can be easily identified are:
- Wages of employee that is leaving
- Cost of advertising
- Cost of benefits of departing employee
But there are also other hard costs that organizations don’t consider at a first moment, such as:
- Employee’s supervisor/manager pay rate (they will most likely be covering for the departing employee)
- Administrative staff pay (they are spending time filling out paperwork, answering questions, completing the termination process)
- Coworker’s pay rate (they may be called on to work overtime to cover the departing employee or temporary workers may be contracted to cover the work)
- Interviewing (takes a lot of time to conduct a series of interviews and you need to pay the interviewer – no matter what staff member(s) are conducting the interview)
- Reference checking (either you do your own reference checking and pay your staff a wage or outsource and pay the outsourced company – there are fees involved)
- Drug testing (if applicable there are fees for drug testing)
- Orientation and on the job training (someone conducts the orientation, prints manuals and forms, answers questions, trains the new employee)
The soft costs might be harder to identified but also need to be understood and addressed. These are:
- Loss productivity of employee (usually the exiting employee performs at 50-75% of norm)
- Loss productivity of coworkers (time spent gossiping or taking on additional work load which may upset them)
- Loss productivity of supervisor/manager (having to spend time dealing with employees and answering questions)
- Productivity lost if position remains vacant (may increase overtime, temporary services, time spent filling in, supervisor/manager time spent on scheduling issues)
- Lost productivity during training (new employee requires support and direction, existing employees may be distracted, supervisor/manager spends time with new employee)
In this respect, William G. bliss of Bliss & Associates lays down the main costs to calculate related to the loss in productivity (soft costs):
- Upon completion of whatever training is provided, the employee is contributing at a 25% productivity level for the first 2 – 4 weeks. The cost therefore is 75% of the new employees full salary during that timeperiod.
- During weeks 5 – 12, the employee is contributing at a 50% productivity level. The cost is therefore 50% of full salary during that timeperiod.
- During weeks 13 – 20, the employee is contributing at a 75% productivity level. The cost is therefore 25% of full salary during that timeperiod.
- Calculate the cost of coworkers and supervisory lost productivity due to their time spent on bringing the new employee “up to speed.”
- Calculate the cost of mistakes the new employee makes during this elongated indoctrination period.
- Calculate the cost of lost department productivity caused by a departing member of management who is no longer available to guide and direct the remaining staff.
- Calculate the impact cost on the completion or delivery of a critical project where the departing employee is a key participant.
- Calculate the cost of reduced productivity of a manager or director who looses a key staff member, such as an assistant, who handled a great deal of routine, administrative tasks that the manager will now have to handle.
It can definitely sound overwhelming but it’s also a silent killer if ignored. Reducing turnover is something that can only be done prior to on boarding. To avoid a high turnover rate, organizations must master a good company-employee match that will eventually lead to a satisfied employee and satisfied employer. If this is the case, it is less likely for employees to leave or get fired as a motivated and satisfied employee will work at its best.
If your organization is undergoing a critical turnover rate, consider getting to the root of the problem. Hopefully you will identify the issue and stop the revolving door.