The Actual Cost of Employees You Don't Employ Anymore

Employees joining and leaving is a normal part of the employment cycle, right? So, why bother about past employees when you can focus on and motivate your current workers to get the work done?

The answer is simple. 

Understanding past workers' impact and cost implications on your present employees can help break the chain of a retrogressive employment system. It’ll discourage a system that promotes job hopping, training fatigue for HR teams, and an unexplainable dent in your company’s revenue stream. 

While companies often can’t control voluntary and involuntary employee turnover, you can analyze the costs of employees you don't employ anymore. And apply it to your overall growth strategy.

This article will highlight the actual and hidden costs of employee turnover felt by the company, employees, and new hires. 

What Are Employee Turnover Costs?

Employee turnover costs are company losses from an employee's voluntary or involuntary exit. And data varies on the real cost of employee turnover to companies. 

For instance, this chart from Gnap breaking down the cost of employee turnover based on career level shows the turnover cost at different levels. The entry-level roles are the lowest, at 30-50% annually, while senior positions like supervisor roles range from 100-150%.

Sometimes, these costs cannot be quantified in numbers or formulas, which is why they accumulate, making employee turnover costs more expensive than you think. 

So, while companies obsess over the reduction in output, which impacts revenue, many factors come into play with each employee that exits and needs a replacement. 

Let’s consider some of them.

• Hiring costs 

The average cost of advertising a role online varies. And ideally, companies are advised to spread their nest far, often replicating cost in multiple places. 

These costs add up, especially if there are different roles involved. After which, you consider the cost and time lost carrying out interviews, screening them, paid tests, paperwork, and documentation. Plus, setting up a compensation and benefits package for the new employee. 

• Loss of Productivity

Between the time spent hiring new talent and onboarding, other employees will have to bear the brunt of the extra work that can reduce their efficiency. 

• Brain drain

Even an employee who has stayed for just a few months they have accumulated some knowledge and expertise. 

And with an exit, you’ll have to spend time building back with a new hire. Losing capable hands this way comes at a cost and a risk of them sharing confidential company information. 

What Are The Four Components Associated With The Cost Of Turnover?

For the different types of employee turnovers and the accompanying costs, Jack Altman highlights four primary factors for analyzing them, which include:

• Cost of hiring.
• Cost of onboarding and training.
• Cost of learning and development.
• Cost of time spent with the unfilled role.

With these components, we arrive at a more concise formula for the calculated cost of employee turnover. 

See the formula for calculating the annual cost of employee turnover

below:

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These components also give us an idea of the hidden costs of employee turnover, which cannot be calculated using any formula.

How Much Does Employee Turnover Cost?

Employee turnover costs hurt the company in ways that go beyond money.

Remember we mentioned that the actual cost of employee turnover affects the company, the employees, and new hires? Let’s look at the different ways that play out.

Hidden Cost Of Employee Turnover For The Company

• Reduced Output

With fewer hands available to work and the new hire yet to get familiar with the work process, productivity will nose dive. 

And the company will spend more time correcting mistakes from new hires rather than staying efficient.

• Negative PR 

Having an above 10% employee turnover rate casts a bad look on the company, whether voluntary or involuntary. 

Customers will be left dissatisfied with the output, and regular company advocates will also lose trust in the company’s internal processes, negatively impacting the company’s reputation.

• Reduced Customer Satisfaction

With the company producing less than is expected and, worse, fewer quality products or services, where does that leave customers? Dissatisfied, disappointed, etc.

Hidden Cost Of Employee Turnover To The Employees

• Increased Work Load

When an employee leaves the company and a new one joins, other employees have to step in to fill the void while handling regular tasks and dealing with their colleague’s departure. 

These put undue pressure on employees who may not be compensated for their extra efforts and may eventually lead to burnout.

• Lowered Motivation

Employees rely on each other to get the work done. Plus, they create friendships that transcend the workplace but are fostered by their proximity at work. 

When one leaves, the emotional effect of their departure can dampen their work spirit. And this low motivation can also influence others to leave the company too.

Hidden Cost Of Employee Turnover To The New Hire

The work institute reports that 37.9% of new hires resign within a year. And two out of three often do so within the first six months.

• Undue Work Pressure

Stepping into an existing role with a lot of pressure can make or mar the work experience of new hires. If their predecessor had a great work ethic, they’d have big shoes to fill and may have to deal with the comparison and standards set by the predecessor. 

On the other hand, an underwhelming performance by a past hire can adversely affect the new employee as they’ll be inheriting the mess of their predecessor. And it can also lead to early exhaustion in the role.

• Negative First Impression

New hires may be unimpressed by the number of people who have left the company. And if they ask questions and the answers point to a poor work environment, the new hire has a right to be cautious.

However, cautiousness may negatively reflect on their work ethics and output even if the past employees left for no fault of the company.

Managing Employee Turnover Costs

While hidden and tangible costs will always be there with each employee who exits, there’s a better way of handling them. 

The goal is to have fewer reasons to spend repeatedly on employee turnover, especially with new hires. And to create an enabling environment for workers to thrive and collaborate. 

Otherwise, there’ll be less incentive to take on each other’s tasks and give in one’s best in the company.

Since employee turnover closely depends on employee experience, you can reduce it by:

• Implementing Exit Interviews 

Interviews allow you to get direct feedback on company processes. Plus, you can pick out areas to address before the next hire or areas to implement as soon as they join the team.

• Documenting Work Processes 

Documentation saves time and makes work easier. It’ll reduce turnover costs as employees will better understand how different roles operate directly and as a team.

• Better Working Conditions

A terrible work environment can discourage employees from doing their best, even with great pay. Toxic work environments are not helpful for productivity.

Equip Your Managers With Assembly

Finally, working with managers with great people skills and high emotional intelligence is essential. Managers who have the welfare of workers at heart and are willing to implement policies can incentivize other staff to stay longer in the company.

And giving your managers the right tools to augment their skills is the icing on the cake. 

With Assembly’s efficient solutions to enhance productivity, boost employee engagement, and improve manager feedback, your managers will have all they need in one place.

Book a free Demo today to get started.