Nov 10, 2024

The Real Cost of Employee Turnover

The cost of employee turnover is higher than you may think, clocking in at an estimated £30,614 per vacant position. That’s a relatively conservative estimate, as well, given current labour market conditions. In the context of small and medium businesses, soaking a cost on that scale is nearly unthinkable.

In addition to causing headaches and hassle for your business, replacing employees is a costly endeavour. According to Business News Daily, 33% of employee turnover costs are ‘hard costs’: expenses like temp workers, advertising positions, recruiting fees, and background checks.

The remaining costs? Lost productivity, reputational damage, and more can hurt your business in a big way. From paying for hiring solutions to the impacts of extra strain on the team, the cost of employee turnover extends far beyond the price of onboarding.

This article discusses exactly what makes employee turnover so expensive—and how.

Hiring Process

The most immediate and obvious cost of employee turnover is that of the hiring process to bring on employees. According to Glassdoor, the average cost-per-hire runs the average employer about £3,000 per employee—for the hiring processes alone.

Cost-per-hire entails only the expenses you put out to attract, vet, and eventually bring on a new staff member. These costs often include advertising for the position in various forms, such as banners, job posting sites, and pay-per-click ads to attract talent. LinkedIn and other job boards can be helpful tools to draw in job seekers, but higher-level positions may require a more specialised net.

For these specialised positions, cost-per-hire can be significantly higher. Many employers in need of top talent turn to recruitment agencies to headhunt qualified professionals to fill their roles—but top talent comes at top prices. Most recruiters charge as much as 20-30% of the final salary, leaving you with a hefty invoice to replace any specialised staff member you cannot source yourself.

This doesn’t cover the expenses for internal employees’ hourly time spent interviewing, researching, and otherwise vetting your candidates. For owner-operators, the time spent in an interview may feel like a negligible cost. However, hours wasted on the phone and meeting with potential candidates is time away from clients, management, and other more productive tasks you could be taking on to add value to your business.

On top of this, many employers also pay for background checks and drug screenings to further seal the deal on one or more late-stage candidates—all technically “optional” processes that add up.

Onboarding Expenses

Once you’ve found an employee, the cost of employee turnover should grind to a halt.

“Should,” being the operative word. In practice, however, this is not the case. Employee onboarding is as costly as it is vital to retaining your workforce and avoiding a cyclical pattern. On the front-end, onboarding costs include the expenses of filing paperwork for insurance, taxes, and payroll. Your HR reps will spend several hours on these tasks for each new hire, and that’s just the beginning.

Hard costs for onboarding also include provisioning new employees with the tools they need to perform their roles. For example, you may need to buy them new equipment or provide a stipend if your office has a “bring your own” model. In other cases, you’ll need to pay IT costs for the old employee’s devices to be reconfigured to accommodate your new hire.

In other cases, such as work-from-home, you’ll also need to pay shipping costs to have the equipment sent to your employee’s home—and this is all in addition to any personal items needed such as uniforms, desk placards, branded apparel, and more.

Onboarding may seem like an area to glaze over—you’ve hired your employee, and they should be able to train under their coworkers and learn on the job. However, ill-constructed onboarding processes are severely detrimental to employee retention. 69% of employees who undergo a highly successful onboarding path—one that orients them to the company, culture, and the information they need to succeed in their position—will stay with their company for at least three years.

To the same effect, though, comprehensive onboarding will cost you. You’ll want to invest in a quality training tract to help explain at least the basics of your brand and likely assign an employee (or two) to assist your new hire in learning their position.

Your new hire will incur time costs from everyone around them while becoming acquainted with the office, as well: From asking questions about daily operations, such as how to use the copier or log on to the WiFi, to needing help correcting learning-curve mistakes, your cost multiple employees hours throughout their onboarding process.

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Lost Productivity

The costs incurred during the proper hiring process are lofty, but what about the “soft costs,” or those that take their toll on the loss of efficiency or income flow? It takes the average business nearly 28 days to fill a vacancy—which is a significant period to go without proper coverage.

There’s a common word problem covered in most maths classes, in one form or another: If a team of six people can bake sixty pies an hour, how many pies can a team of five bake? It’s an elementary problem, but this age-old productivity equation can add up to disaster for your business.

When you have fewer employees, they simply cannot perform to the same level as a full team. Depending on what your business model values most, you will have to sacrifice quality, volume, turn times, or some combination thereof. Regardless of your choice, the end result of lowered productivity is also reduced revenue.

In addition to productivity lost during that nearly month-long vacancy period, employee turnover costs continue to pile up after your new employee is hired. Why? Simply put, there’s a learning curve to performing at peak capacity. It typically takes new employees around eight months to become fully productive in their roles, though this period may be shorter for smaller companies or elementary staffing solutions.

Reputational Damage

With your productivity pinched and staff scrambling to keep up, the following hidden employee turnover cost lies in reputational damage. This can take many forms, but the two main categories are:

Damage to the customer experience
Negative impact on perceived brand values

The first of these crises is pretty simple to understand: Your staff cannot delight your customers if there are not enough staff members to go around. There is a direct positive correlation between a company’s employee reviews and their consumer satisfaction—and overworked, exhausted employees are seldom happy ones.

In service settings, a short-staffed business could translate to longer waits for food, fewer available appointments for services, or even less attentive employees making more mistakes as they struggle to keep up. Short staffing will lead to both a loss of profits and disappointment due to lower stock levels if you produce goods. It could also manifest in inferior quality goods as your workers scramble to meet former quotas with one fewer staff member. When word gets out that your business isn’t up to its typical standards, you may lose consumer trust in your brand.

The second type of reputational damage lies in how consumers view your business ethics. In a recent study of mid-pandemic participants, 81% of consumers stated that they “must be able to trust the brand to do what’s right.” If your workers are visibly spread thin, it creates an image crisis. Are they overworked for no reason? Does management just not want to hire someone? Your average consumer won’t know why you have a staffing vacancy—they only see the impact and judge accordingly.

Falling Into Turnover Cycles

At the end of the day, your workforce comprises individuals—and individuals get burned out. In fact, as many as 79% of UK workers say they’ve experienced burnout. Aside from damaging workplace morale, the risks from employee burnout can lead to resignations. 58% of burned-out employees are searching for or open to new opportunities… which leads you right back to the top of this article, repeating the cycle and incurring more costs.

When one employee leaves the company, others may feel uneasy or unhappy, whether or not they are directly responsible for picking up the slack. Workers who feel insecure in their jobs, as they do in environments with high turnover, are more likely to search for new opportunities in turn.

Moreover, studies revealed that 50% of workers stated that having a “work best friend” made them feel connected to their company. Fostering workplace friendships is a great way to build company culture and create a business that your workforce wants to work for—but it can lead to a domino effect when one employee leaves.

Employee turnover can be viewed as having an exponential effect: The cost of one employee leaving, if not addressed quickly and with aggressive, attentive investment, will cause ripples that can destabilise your staffing model to the tune of several hundred thousand pounds.

Why Is Employee Turnover So Expensive?

Employee turnover comes with many costs beyond the surface—from damage to your bottom line to irreparable harm to your brand. Moreover, employee turnover costs often interact, as productivity and worker burnout, among other factors, tend to gain momentum and lead to hefty consequences.

The best way to avoid turnover is to focus on retention from step one: Hire quality employees and train them well. From there, you can build a company culture based on shared values and a positive working environment.