The Real Costs of High Turnover

How to Avoid High Turnover

As a small business owner, turnover rates can be brutal on the bottom line. Everything has an impact on a firm’s profitability.

Hiring costs money; firing costs money.

A revolving door of employees hurts profitability, possibly even before an organization realizes how much.  Often, it takes a keen eye to see that every penny adds up quickly as turnover rates increase.

What are the actual costs of high turnover?

First, examine each step in the process—recruiting, hiring, training and firing. With all the details involved in constantly bringing on new workers, each stage can add up to a nightmare.

Consider separation costs. Exit interviews, preparing COBRA and other end paperwork all require staff time. Payroll costs—severance, holiday and other monies, as well as possible unemployment costs.

The costs involved in hiring temporary or contract workers during the process of replacing a departing employee. Even with no outside help, review the overtime for employees with increased workloads. Remember, having remaining employees pick up the slack during the search for a replacement could put a strain on morale.

With all the little details, it is no wonder how recruitment costs add up.

Each step in the hiring system has its own associated costs, from writing and posting job descriptions to advertising and agency fees. Many of the less obvious costs include additional staff time to the price of paper and office supplies. Add to the mix professional recruiters and agencies, and the whole process becomes much more expensive.

Your calculations should also include time spent:

  • Sorting resumes and conducting initial telephone screening.
  • Communicating with candidates and scheduling interviews, a time-consuming task that increases when additional staff is taken from other, more productive jobs.
  • Salaries and hourly rates of interviewers and management used in the hiring process.
  • Additional interviews—that’s more time and money.
  • Pre-employment background checks, drug screening and testing.
  • Assembling paperwork and miscellaneous documents.

The costs of post-employment:

  • Drug-screening and physical exams.
  • Orientation and onboarding—initial forms and paperwork.
  • Training to get a new hire ready to do the job.
  • The learning curve—time from when a new hire is officially on the clock, to the time when they can do the job with minimal supervision. Costs skyrocket when new hires are managerial level employees or those requiring technical or specialized skills.
  • Training and coaching by managers and supervisors.

Not every value can be easily estimated. What are the costs when a top-performer leaves the company, or when promoting someone and their old job needs to be filled? Salaries may be easy to compare, but not the impact these employees had on sales figures, clients or customers. They are not sure numbers to calculate!

To keep the revolving door of employees from eating too much of the bottom line, here are some tips to avoid turnover:

  • It takes time to hire the right person, so be patient.
  • Onboarding and orientation are essential to a good start. Always make sure to receive a new employee properly. A strong sense of positive corporate culture keeps good people around longer.
  • Employee relations are everyone’s responsibility. All employees should meet company expectations of how to get along with other co-workers.
  • Policy and procedure enforcement must be fairly administered.
  • All employees are to be respected, without intimidation, harassment or bullying.
  • Choose management for interpersonal  (or ‘soft’) skills and leadership abilities.
  •  Additional training and advancement opportunities should be made available whenever possible.
  • By using available HRM technology, employers can recruit and hire from a larger pool of pre qualified candidates at a significantly lower cost.
  • Salaries and benefits are competitive for the marketplace.

 

Related articles