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According to the Work Institute Employee Retention Report, in 2018 a projected 42 million Americans will leave their jobs That’s about 27% of the employed labor force in the U.S as of June 2018! But 77% of these cases could have been prevented by their employer. So how does this high-turnover environment impact you and what are you going to do about it?
We all know that losing a valuable employee hurts both the bottom line and morale. People are a company’s biggest assets, there’s no doubt about that. So, preventable high employee turnover can be one of the biggest liabilities for a company especially as we see the number of employees voluntarily leaving their places of employment rise. While losing an employee who steals office resources isn’t something a manager frets over, the possibility of losing a qualified, honest employee is enough to cause anxiety.
In this article, we’ll examine how to get a more solid number of what turnover costs you and provide some suggestions for retaining those valuable employees.
Putting a Number on the Cost
To calculate the quantitative costs for losing an employee, you’ll need to take into account the cost of advertising the position, interviewing, training (including the time current employees give for training the new hire), productivity and revenue lost from the unfilled position, and the time it takes for them to gain a competency equal to who their replacing.
When an employee leaves, replacing them costs a significant portion of their annual salary. This portion of their salary fluctuates depending on the nature of their position and the amount they were paid. According to studies done by the Center for American Progress, it takes a larger chunk of the annual salary to replace more skilled, highly paid employees and a smaller percentage to replace other employees. The following percentages were found to be the average or typical amounts of the salary that is lost when losing and replacing an employee.
- It costs approximately 21% of a highly skilled, trained employee’s salary to replace them (with the exception of doctors and executives).
- It takes about 20% of a $50,000 – $75,000 salary to replace an employee earning that amount.
- It costs 16% of a salary to replace an employee earning $30,000 or less.
When you take a step back and run the numbers, that adds up! Twenty percent of $75,000 is $15,000 and 16 percent of $30,000 is $4,800. I don’t know about you, but there are a lot of things I can think of using that money for besides replacing an already valuable employee.
But those are general figures from averaging the findings in case studies. What about your company? You have unique situations, employees, and businesses. There are a few different ways to go about calculating the turnover costs for employees. Below are some suggested metrics to give you some ideas for discovering the cost of turnover for your company.
- The length of time it takes for an employee to be considered trained or profitable times their monthly wage (i.e. 3 months x $2500).
- The cost of your job advertising methods (i.e. LinkedIn, Indeed.com, Monster.com, Glassdoor, etc.)
- The amount of time taken times the wage or salary amount of the other employees participating in the training and interviewing rather than doing their normal duties (i.e. 20 hours of pay and lost productivity).
- How much projected revenue will not be earned since the former employee left (i.e. how much sales revenue would that former employee have made if they had stayed with the company). This number can be based on their historic performance and how other similar employees have performed after being at the company for the same amount of time.
The Intangible Effects
The qualitative, or non-monetary influence on a company when a successful employee leaves can include loss of morale, other employees questioning why they left, and dissatisfaction with their jobs, schedules, the benefits (or lack thereof), and the coworkers they are left to work with.
When employee morale is chopped, productivity drops and employees tend to disengage from their work. The costs and effects of this alone are an entire topic for another day. Along these same lines are opportunity costs; lost opportunity for using the former employee’s skills, knowledge, experience, and desire for growth to build your company. When a long-term employee quits, they take with them their tacit knowledge built over years of experience.
Retaining Your Employees
So what can you do about it? You can’t control the economic conditions that create this high-turnover situation so let’s focus on some things that you can control to retain your talent. These factors include culture, compensation, opportunities, and relationships.
The leaders and managers of the company have the greatest effect on the culture. Who they decide to hire, management style, how they build relationships with employees, energy, and attitude all change the culture in the office. While changing the culture of your business is difficult, it is possible and sometimes necessary. It takes everyone jumping on board and moving toward a positive environment and it starts with the leadership of the company.
Compensation is an obvious yet tricky player in the high turnover game for small businesses. Small businesses are burdened with taxes and ACA compliance challenges making cash tight and optimal benefits difficult to offer. So, for the time being, continue looking for the best possible options and be open with your employees that you’re doing all you can for them. When it comes to wages and salary, do some research on what their positions and experience are worth and benchmarks on how much they should be paid. Doing your due diligence in this research can help you avoid over/underpaying them for what they’re worth. Some tools to help you benchmark appropriate wages and salaries are Payscale and HR 360.
Create an environment in your office that is conducive to feedback and involve your employees in decision making. Seeing an issue from multiple angles, drawing from the experiences of your employees will do wonders to expand your original view. Set up methods of gathering employee thoughts, suggestions, and feedback through regular short meetings, an online document or Slack channel, or whatever else works best for your office environment. If your employees have a great idea that will improve the business, help them implement it.
People shift jobs due to three primary reasons, according to a study done by Facebook’s People team. Employees who don’t enjoy their current positions, feel their strengths are underutilized, and/or feel stunted in their career growth are prone to leave. This is another reason why an open feedback environment is critical. Creating growth opportunities requires knowing your employees better either directly or through their direct management depending on the size of the business. For example, if you find out an employee really likes writing and editing; have them start contributing to a blog for your website.
Finally, continue building good relationships with your employees. What can you do to make memories with the people you work with? Pay attention to events that are opportunities to have some fun with each other to break up the monotony of work.
- Birthdays
- Weddings
- Birth of a co-worker’s child
- Graduations
- Certifications earned
- Work anniversaries
- Training events
- Conventions and trade shows
Balloons, congratulations cards, flowers, occasional office lunches, game nights, and friendly office competitions are all fantastic options that can be done with a pretty small budget. One example I loved hearing was when a small company met a certain goal, they all got one bottle of their choice of fruit juice or soda and called it a “drink day”. Such a small thing but it lightens the day.
Creating job opportunities and solid friendships will help you retain the talent you attract. It takes effort but it pays off.