The Hidden Costs of Employee Turnover

Use these data points to convince company stakeholders that it’s time to invest in employee retention, which can in turn ease the pressure to hire.

Nick Steele
March 30, 2023

Retention. It’s a loaded topic in industries where turnover is a fact of life. Be that as it may, it’s hard to disagree that keeping retention low can contribute to a company’s financial stability.

What many people don’t know or understand, though, are the true (and often hidden) costs of employee retention.

If put on the spot right now, could you quantify the real cost of your current open positions? By the end of this blog post, you should be able to.

Why is that important? Because those numbers can help you convince company stakeholders that it’s time to invest in more employee retention efforts, which can in turn ease the pressure (on you) to always be hiring.

Why Is Retention So Important?

You already know this, but turnover is expensive. Any time a worker leaves their position, it can cost the business anywhere between 20% and 250+% of that worker’s annual salary.

Say you pay your workers minimum wage, or $7.25 per hour. If just one of those workers leaves your business, it can cost you between $2,784 and $34,800. Now multiply that by how many workers leave in a single year, and the costs start to get scary very quickly.

If seeing that number gives you some sticker shock, you’re not alone. However, it's important to recognize that turnover can be financially crippling, and often the extent of that crippling goes undiagnosed because the factors that play into the cost of retention are cross-functional and very diverse.

Twenty percent to 250% is a wide range. Where your business falls on that scale depends on lots of variables, many of which are hidden costs that go far beyond a surface-level analysis.

The Hidden Costs of Employee Turnover

Benchmark Employee Cost

The total costs of the departed employee’s compensation (pay and benefits), which can be broken into daily or monthly rates for the calculations that follow.

Cost of Covering Vacant Positions

Multiply the daily benchmark employee cost by the number of days a position is open to determine the cost of covering vacant positions, which is an approximate estimate of:

  • Resources diverted to cover missing labor capacity
  • Pressure put on understaffed teams
  • Increased inefficiency and lost productivity

Onboarding & Orientation Costs

  • Cost of all paid time spent by all staff on recruiting, pre-boarding, setting up payroll, and orientation of new hires (also include an estimate of time spent by on-the-job trainers if applicable)
  • Cost of all internal tools used during the hiring process (like Team Engine)
  • Cost of any advertisements that support sourcing, such as social media ads, Indeed sponsorship, or Craigslist ads
  • One-time setup costs per employee
  • Drug testing
  • Background checks
  • Uniform costs

Ramp-Up Times

This can often be the biggest hidden cost of turnover. If you lose an experienced worker and replace them right away, your team is still substantially weaker than it was, and that has a dollar cost.

A simple way to figure out this cost is to determine the time before a new employee is considered fully productive (often 30 to 90 days) and to use the Benchmark Employee Cost to calculate the cost incurred to get the worker to that fully productive state.

Lost Business Due to Decreased Labor Capacity

If you lose labor capacity, not only does that imply a loss of capacity to complete your existing contracts, it also means that you have less ability to seek out new business.

These costs will be different for every company, and for every role within that company. For example, it will cost more to replace an accountant than it will a landscape laborer.

Hopefully by now, you’re feeling armed with some information to share with your company leadership about how expensive turnover can be. However, it’s always a good idea to go pair the problems you are bringing up with some solutions ready to speak to.

So what can you do to put a stop to this employee turnover cycle?

How to Lower Employee Turnover

Communicate, Communicate, Communicate

Lack of communication is one of the primary drivers of workplace stress and leads to inefficiency, confusion, frustration, and eventually, turnover. Ensuring that your organization has fast, accurate, and cross functional communication is absolutely paramount in preventing turnover. Team Engine’s text capabilities ensure that lines of communication stay open, even between field-based teams and office-based leadership.

Build A Strong Foundation

Building a culture resistant to turnover has its foundations in making every worker feel connected to their peers, the company, and its mission. An excellent way to promote those connections is to build regular and structured one-on-one meetings into each employee’s tenure. Newer employees may need this kind of support more frequently, such as once a week for the first month of their tenure, while more experienced employees might do so as little as once a quarter.

Good one-on-one meetings build on themselves, so make sure to take notes during each meeting, and follow up on requests made during them. This can help you build credibility with your employees and form stronger connections with them.

Create Growth Plans & Help People Through Them

The best way to ensure that someone will be with the company in one year is to show them a way to grow over the course of that year and to support them through that growth plan. Growth can entail learning new material skills (like a new machine) or new responsibilities (like taking on the training of new hires). No matter the form it takes, the fact that your organization is investing in its employees will resonate with people if you are making sure to follow through.

Regularly Evaluate Compensation Plans

If you have a strong culture, it can often be more compelling than the best compensation. However, it’s important to make sure that you’re not leaving the door open for your competitors to undercut you with wages or benefits. Make sure to regularly evaluate your compensation plan and benefits packages to ensure that you are making your jobs lucrative for your employees, as well as culturally fulfilling.

Ask For Support

With these solutions in mind, I want you to feel empowered to ask for the resources you need to address employee turnover and invest in employee retention.

Whether you’re a Team Engine customer or not, schedule a call to chat if any of this resonated with you.

Schedule a call to chat with Nick about employee retention and the hidden costs of turnover


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