IIn today’s economic climate, it is incredibly important for businesses to find, create, and retain the best employees. It can be a particular challenge for small businesses and not-for-profit organizations because they are fighting against big businesses. Larger businesses have the available budget available to attract and keep highly skilled employees.
Larger businesses also have better benefits compared to what a smaller business can offer. Personalizing benefits to what an employee really needs can help with retaining employees. There are many ways that small businesses can retain employees by listening to their needs and creating a positive environment that employees will want to stay and work in. The cost of appealing to an employee’s needs so that they stay with your organization can often be less than the cost of losing an employee, so it is important to understand employee turnover costs.
Section 1: Understanding The Cost of High Employee Turnover
- Create Positive Work Environments
- How Much Does Employee Turnover Cost?
1. Create Positive Work Environments
When a business has a high turnover rate, it likely has a negative effect on the rest of the employees. It can affect the employee’s energy, their productivity, their morale, and even the income of the business. Businesses have to consider the cost of employee turnover, which includes recruiting and training new staff members, who may not fully commit to staying with the company. Therefore, it is vital to create a work environment that will allow employees to thrive while avoiding unnecessary employee retention costs.
2. How Much Does Employee Turnover Cost?
It is impossible to calculate the exact cost of employee turn over because every situation is different, but it is a huge factor that management and human resources need to consider.
There have been past studies that have calculated that for every time a business has to replace a salaried employee, it financially impacts the organization with an average of 6 to 9 months salary. If someone in management quits and they are making $60,000 per year, that equals to around $30,000 to $45,000 in expenses to cover the cost of recruitment and onboarding.
How much does it cost to replace an employee? That depends on the position at an organization a person is in, and how much they are paid. We found a Center for American Progress case study that revealed the following cost of employee turnover statistics:
- 16 percent of yearly salary for high turn over, minimum wage employees who are paid less than $30,000 annually. For instance, it would cost $3,328 to replace a retail worker that makes a salary of $10 per hour.
- 20 percent of yearly salary of intermediate roles who make between $30,000 to $50,000 annually. For instance, it would cost $8,000 to replace a supervisor that makes $40,000 each year.
- It can cost up to 213 percent of yearly salary for highly educated executive role. For instance, it would cost $213,000 to replace a chief executive officer that makes $100,000 each year.
Section 2: Reducing Your Cost of High Employee Turnover
- Modern Day Employee Turnover
- What Is The Average Cost of Employee Turnover
- Tips For Reducing Employee Retention Costs
- Modern Day Employee Turnover
A 2020 report from the Work Institute found that in 2019 in the United States, 42 million employees voluntarily quit their jobs – which meant 27 percent of the total work force. That was a turnover increase of 8.3 percent from 2018, and an increase of 88 percent since 2010.
2. What Is The Average Cost of Employee Turnover?
This study on employee retention by Josh Bersin – a global industry analyst, explains the main factors that contribute to the cost of replacing an employee.
The factors that were mentioned are:
- The hiring cost for a new worker includes the advertisement, the interviewing process, screening, and the hire.
- The onboarding cost for a new employee, that includes training and time with managers.
- Productivity loss, as it will take up to two years to match the productivity of a current employee.
- Lost engagement – existing workers may not work as hard, and lose engagement with their work if there is a high turnover.
- Issues with customer service and human error due new staff employees take time to learn their job, and handle problems with less experience.
- Cost of training, an organization is likely to invest 10 to 20 percent of an employee’s annual salary to train them or more over two to three years.
- The cost of the impact on the business culture because when a worker leaves, the rest of the staff tend to question the reasoning behind it.
How much does it cost to hire and train a new employee? What is the cost of high employee turnover? The costs include exit costs, recruitment, the interview process, hiring, onboarding, training, diminished productivity, client satisfaction levels, lost sales, administrative costs, and the loss of a expert employee. You need cooperation across departments, including human resources, financing, and operations, as well as using programs to determine the costs, and reporting tools.
3. Tips For Reducing Employee Retention Costs
What can businesses do to reduce employee turnover costs?
We suggest trying the following employee retention tips:
- Measure the rate of your employee retention.
- Avoid guessing, and practice tested retention plans.
- Create an open-door environment and survey employees, so that you are aware of their satisfaction levels at work.
- Create a health benefit plan, so that employees will be incentivized to remain at your business.
- Hold exit interviews, so that you can get feedback that may avoid others from leaving.
How can you reduce your employee retention costs at your business? We hope you will consider this article when you are working hard to reduce your employee turnover costs.