The reach of turnover’s negative impact on businesses is often underestimated by management and is frequently accepted as “part of the industry”. You should never accept any unnecessary employee turnover, especially in service industries. To see how turnover affects your business, think about how often the following effects show themselves at your business.
Lost productivity – Other staff members will have to pick up the slack of a missing employee, which reduces everyone’s overall productivity and your bottom line.
Temporary cost of replacement (i.e. contractor wages) – Some positions can be filled by others picking up the slack, resulting in no immediate incremental expense. However, if this is a frequent occurrence, morale can suffer, leading to more turnover. Other positions will need to be filled with temporary or contract workers, which results in additional cost.
Recruiting/hiring expense – This is the literal cost of filling the position and can include search fees paid to agencies or headhunters, referral fees paid to employees, ads in newspapers, or job board posting fees.
Management time – The time that management has to spend going over resumes, scheduling and conducting interviews, evaluating candidates, and making job offers not only costs the business more wages, but also means that the business is losing productivity because the manager is not on the floor.
Training costs – This includes all the costs associated with ensuring that new staff members have all the skills and tools they need to do the job, like the wages of a trainer and time spent assessing the new hire.
Learning curve – The time it takes the new employee to perform at an optimal performance level. During the training phase, an employee’s productivity and skill set is obviously less than a fully trained employee, and it will take different amounts of time for different new hires to catch up.
Knowledge replacement – Much like the cost of the training phase, your new hire lacks the refined skills that come with months or years of practice. Seasoned employees are extremely valuable to your business, and the cost of losing one has far reaching consequences.
As a rule of thumb, research has shown that calculated turnover costs can run anywhere from 25% to 150% of the position’s salary and benefits, depending on how many of the above costs are applicable to the position.
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