The True Costs of Employee Turnover

September 28, 2017

Category: News

It's no secret that employee turnover can be a costly situation for many businesses. Naturally, you'll need to get a new person up to speed with your software, systems, and processes. It is a reasonable expectation to assume new employees will perform their job functions less efficiently than their predecessors in the beginning. A few years ago, the Center for American Progress reported the costs of turnover for employees who make <$75,000 averaging between 10 and 30 percent and up to in excess of 120 percent in some cases. Translated into time, this means turnover costs could equate to as many as 15 months before the new hire is fully capable of doing his or her job efficiently and in a cost-effective manner.

So, what's the mystery behind these expensive numbers?

As LinkedIn influencer Josh Bersin states, "Many studies show that the total cost of losing an employee can range from tens of thousands of dollars to 1.5-2X annual salary." Within those numbers, there are hard costs, such as recruiting and advertising expenses, and there are soft costs that are harder to calculate. The latter of which can include anything from decreased employee engagement and morale to lost knowledge that leaves with the exiting employee.

If the training structure in your organization is poor, your turnover costs will likely be even worse. Business process management (BPM) systems close the gaps and minimize turnover expenses, but only if you have proper systems in place.

The following are some common places where turnover costs can cause greater-than-expected expenses:

• Hiring costs. Whether you're paying a recruiter, shelling out cash for online job advertisements, or paying in-house staffers to vet and interview candidates, there is an expense associated with hiring. Internal teams must take time away from tasks they would otherwise be doing, which can cause a bottleneck on everyday processes, while outside recruiters can become costly, particularly if the search is specialized or takes a long time.
• Overtime costs. While your new hire gets up to speed, existing employees will need to shoulder the burden of daily tasks. Overtime costs, which are often time-and-a-half or double-time, can add up quickly. Besides the monetary impact to your bottom line, overtime can lead to overworked employees and decreased morale. The sooner your new hire can carry his or her workload, the sooner your existing team can go back to a normal schedule.
• Training costs. Even if you hire someone who's very experienced, they'll still need time to learn your systems. Training costs account for a significant portion of turnover expenses. The longer it takes an employee to get up to speed, the more financial burden he or she is causing the organization. To minimize the expense of training, it's important to have a system in place that not only teaches new hires the basics but allows other team members to pick up where the former employee left off. This will facilitate a fruitful workflow for all.
• Degradation of Best Practices. If your organization doesn't have a proper training system in place, best practices have likely been lost over time. If new hires have been trained by coworkers, the educational process becomes a photocopy of a photocopy. In other words, the quality of training degrades over time, losing the strategic perspective and becoming simply about the daily tasks. As such, it's up to organizational leaders to implement systems that introduce the company's values at the onset of employment, helping to sustain the quality of training and best practices.

When an employee leaves, you really don't know what you don't know. The less standardized your internal processes are, the less likely you'll be able to hit the ground running when someone new steps in. BPM systems alleviate these situations, allowing you to know exactly where the exiting employee left off. With this hurdle overcome, the rest of the onboarding and training process will go more smoothly, reducing your overall turnover costs.

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