Compound Loss: The True Costs of Employee Turnover
How much does it cost your business to replace a staff member?
By Jenny Eve for Buzzword Business Blog
Staff turnover is often a great opportunity to inject new skills and a fresh perspective into an organisation. The costs of it, however, are less than refreshing. From resignations to recruitment, downtime to training, we discuss the compound losses of losing that valued staff member. And even the not so valued ones...
When your employee has handed you that frustrating little envelope confirming their resignation, a new “To Do …” List magically appears before your eyes.
You need to tell their direct line manager, check the job description and role, re-define it, benchmark it, stress eat, advertise, interview, test, stress eat some more, second interview, job offer, train...
All of which is dependent on it all going to plan.
People drop out, interviews can go horribly, failure to get a replacement quickly and the Head of Department is rethinking the entire departmental structure!
Not only that but the total average employee turnover in the UK is 15%. So even if you are doing everything right chances are you are going to have to do this for 15% of your staff, EVERY YEAR. This average varies between industries but if your turnover anything above 0% the costs start to mount up.
So what are the true costs of Employee Turnover? (Not including your sanity that is...)
We published this handy little video on Twitter that gives a general overview of the facts which you can view below:
On average an employee leaving costs up to 33% of their annual salary.
For example, if your mid-level manager on £30k PA moves on it could cost your company up to £9900, and that is if your detailed recruitment plan actually does go to plan.
This surprising cost includes a multitude of overheads and line items that you wouldn't normally notice overall.
Firstly, the cost of time and the workload of the Hiring Manager.
The time to organise the whole process disrupts their planned projects, which are normally value-adding opportunities, or initiatives to stop people leaving in the first place!
Six hours of interviews later and you have lost a day of their time and another accompanying employee/interviewer. Then, do you have a second round of interviews after testing? Add another two staff members time to the bill.
Secondly, if you make that great hire, chances are they will have to work their notice, meaning you are without a staff member until they join. The projects the outbound employee was working on either need to be paused or back-filled by other staff members depending on how urgent it is and the various skills and stress levels of the rest of the team.
Outsourcing to save time
Advertising the role in and of itself is either TIME CONSUMING OR COSTLY. Seldom both.
There are thousands of job posting sites and advertising opportunities that can cost anywhere from £0 to £400. Listing on these sites isn't selective though, anyone with internet access can see your ad and fill up your inbox. Sifting through this barrage to find “The One” becomes a 300 email mission in itself.
The other option is to contract in a Recruitment Agency. Good agencies can cut your time loss straight down. They will provide you with a pre-vetted list of candidates, ready for an interview and already somewhat sold on your organisation.
The downside for getting high-quality candidates neatly delivered to your interview room is that you will end up paying anywhere up to 35% of their salary to get them in front of you.
Every agency has different rates and can be negotiated down with enough cups of tea and charm. The old adage, “you get what you pay for” is relevant here, so chasing the cheapest deal might not get you the prime candidate or the best service. If you have negotiated them down to the bare bones are they really inclined to do their best work? Especially if it is a niche or rare skill set.
When you have found an agency, who are great, and you feel confident that they know what you are looking for and will deliver, remember before you sign on ALWAYS read the fine print!
An agency pitched to me last year and in the smallest font visible to the human eye it stated 50% of the fees had to be paid just for them taking on the job, even if they didn’t produce a single viable candidate or any visible work for it (I am paraphrasing the legalize, but this was the gist of it). Now I understand that we all have to make money, but it was never mentioned in the preamble, during the meeting or when they sent the contract over at the end of the day. It didn’t come across as honourable, and I was lucky I was wearing my glasses that day.
However, having worked with some excellent agents I know they can really take the strain of the hiring process off of you, so you can focus on those interviews and wheedle out those excellent new hires. (Email me for my top 3 most recommended agencies in the North East of England. I am not on their payroll but I always like to connect great service providers!)
Assessments- the extra billable
Whether using the recruitment agencies in-house tests, another supplier or a test you have devised yourself, assessing the candidate, to ensure you have “The One”, is another delay to the process, and another line item on the whole venture.
Depending on your organisation’s preferences you might conduct a skills test to make sure they haven’t enhanced their resume beyond the truth. You might do a psychometric test to see how they would fit in your organisation or if you missed any points of tension during the first stage interview that need any further discussion.
The pricing of these tests, from 30 minutes of your time to around £200 is an extra deduction from your bottom line.
All Aboard —Onboarding and ALL THE PAPERWORK IN THE WORLD
So you have found the recruiting equivalent of a Unicorn, they have all the skills, experience, and qualifications AND they are a nice human being to boot. They have 1-3 months notice to work. Which gives you ample time to do the paperwork, the copies of the paperwork and then do it all over again when you find the salary has been renegotiated and miscommunicated. Twice.
Once you have worked through that checklist, sent it all out, got it back added their details to every system and spreadsheet, passed to payroll, dotted the “i’s” and crossed the “t’s” that is most of your afternoon sorted.
Last task: the Induction
You spend at least an hour roping in department heads and reluctant new co-workers into an induction schedule for the new hire. You get everyone's availability and sign-on, write it all up and inevitably get four emails afterwards asking for switcheroos.
Then the chosen one arrives!
It is all very exciting. They have their 3rd revised induction schedule, and they are finally starting to learn the job.
It is normally suggested it takes 6 months for a new hire to be fully confident and conversant in the role. Depending on the type of work involved, the responsibilities and level at which they have been brought in at obviously varies. I have seen people master it all within a week. I have also seen very loyal employees of 20 years still not entirely get it. The point is you have an average of six months before the employee is established enough for you to start getting that ROI that you have been dreaming of.
The Emotional Metric
There is one final thing, something that HR practitioners spend their lives trying to quantify and improve, which is incredibly difficult to put into any sane costing model but is still an important factor in the impacts of staff turnover.
Losing that cherished employee isn’t just a blow to the bank account. It can really affect the team and across the company. It is not just about losing the knowledge, the expertise and the only one that knows that excel formula that does that thing…
It means losing your work husband/wife, that BFF that truly understands them when they are slamming their head onto the keyboard. You lose the person who always made the jokes, or made the cuppas, either are vital contributions to the workforce. Established teams are imbalanced until the replacement joins, and they go through the forming, storming, norming and performing paradigm.
Sometimes the outbound employee might not be a miss at all. It is rare that HR wouldn’t have already sorted out anyone who is underperforming or behaving inappropriately, who manage to tread that fine line between sub-par and dismissal. On the rare occasions that those employees leave voluntarily, it is an excellent opportunity for you to get in someone that will truly contribute and enrich your organisation. It will positively affect the team and can really help build motivating momentum in the recruitment process.
After that, there is the reflection that the outbound employee projects onto your organisation.
Why are they moving on?
The reasons that were given and the reasons suspected all need to be assessed and reviewed. You don’t want to go through all the bother of hiring someone new just for the same thing to happen again.
Is there an issue to be resolved? Is it really about the money? Is it just the idiosyncrasies of that individual? Did they really want a career change from COO of a FTSE 100 to 3D Nail Artist or is there something else afoot?
For the sake of your turnover statistics — figure it out.
If that wonderful employee was feeling it, chances are other fabulous employees are feeling it too.
Some things genuinely can’t change. If it’s all about the money, budgets are fixed. But if it’s something to do with a manager, an aspect of the culture, or a part of the actual work being done then it needs to reassessed and repaired.
In cases where you find yourself saying “that has always been that way, it can’t change,” try again, think about it from a different angle. Get the HR superheroes in to bring their creative problem-solving flair to the table. Otherwise, all those lovely profits you try to make will be spent on the one thing you have a real chance of improving: Staff Turnover.
Did you realise staff turnover was costing your organisation that much?