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What to take into account when determining the cost of Employee Turnover

Cost of employee turnover

It has been said that the cost of a single bad hire is somewhere between 1x and 3x of that employee's annual salary. This is true of hourly employees as well as salaried.

Employee turnover can be a silent financial drain on businesses, with costs extending beyond the visible expenses of recruitment and training. To make informed decisions about talent retention, it's crucial to understand both the hard and soft costs associated with employee turnover. Let's look into the methodology of calculating these costs to gain a comprehensive view of the impact on a company's bottom line.

Hard Costs:

  1. Recruitment Expenses: The most tangible costs are those associated with hiring new employees. This includes job postings, advertising, recruitment agencies, and the time spent by HR professionals reviewing resumes and conducting interviews. These expenses are easy to quantify but are just the tip of the iceberg.

  2. Onboarding, Training & Compensation: Hard costs also encompass the resources allocated to onboarding and training new hires. This includes materials, equipment, and the time spent by trainers and managers. Calculating these costs involves adding up salaries, training materials, and any external training programs or consultants. In addition, the salary of the employee that departs needs to be included here as that number is likely outstripped by any gain the departing employee provided.

  3. Lost Productivity: During the transition period, productivity often takes a hit as new employees learn the ropes. Calculate the lost productivity by estimating the time it takes for a new hire to become fully proficient and the impact on team efficiency during this period.

Soft Costs:

  1. Decreased Morale and Productivity: The intangible costs of turnover, often harder to quantify, include the impact on morale and team productivity. A departing employee creates a void that can demoralize the team, potentially leading to decreased productivity and increased stress levels.

  2. Knowledge and Expertise Drain: When an employee leaves, their institutional knowledge and expertise go with them. Assessing the soft cost of knowledge drain involves estimating the value of the lost intellectual capital and the impact on project continuity and innovation.

  3. Recruitment Time and Quality: Soft costs also manifest in the time and effort required to find a suitable replacement. The longer a position remains vacant, the more strain it puts on the existing team. Additionally, rushed recruitment processes may compromise the quality of new hires, resulting in potential turnover risks.

Calculating the Total Costs:

To calculate the total cost of turnover, add up both the hard and soft costs. This involves conducting thorough analyses of each component and assigning monetary values where possible. Consider surveying employees or conducting exit interviews to gather insights into the soft costs associated with turnover.

Understanding the comprehensive costs of employee turnover requires a holistic approach that considers both the tangible and intangible aspects. By quantifying both hard and soft costs, businesses can make more informed decisions about talent management strategies and invest in initiatives that not only attract top talent but also retain it, ultimately safeguarding the company's financial health.

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