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The Real Cost Of Employee Turnover’ How To Minimise It?

David Law

Wed, 20 Nov, 2019

  • Reading Time:
    ~ 5 minutes


Welcome to the ultimate, custom-made nightmare for HR specialists! It isn’t the endless paperwork, nor is it making sure everyone understands the new policies and codes of conduct. No, it’s something much more nerve-wracking— the most dreaded HR situation is replacing an employee.


When a team manager comes to your office with tales of an employee handing in their notice, you might slam the head on your desk. Maybe you’re thinking, ‘The costs!’ or, ‘Again!’ and screaming internally. 


Don’t panic. Yes, employee turnover brings up lots of unexpected costs and hassles (and we’ll look at the stats for those), but it’s not the apocalypse. There are strategies to reduce the impact and keep your team going strong. 


But to solve the problem, you have to understand its ramifications first. 


The initial loss— An employee leaves.


Let’s imagine you have a star employee called Josh. Now, you’re not sure why, but Josh wants out. No longer happy at the company, he’s decided to look for greener pastures elsewhere. His manager just informed you in a frenzy. 


You’ll have to take into account the potential costs of terminating the contract (which go up if the employee is fired) as well as the time and money it’ll take to find a suitable replacement. 


On one hand, you have the manager and team who are pressing for the position to be filled right now. On the other hand, the vast and hard-to-navigate waters of the candidate pool. Sifting through that takes time. And every day that passes is a day your company loses money, productivity, and morale.


The costs of the hiring process.


Finding Josh’s replacement is neither automatic nor cheap. First, let’s take a look at the global stats for vacancy filling. Key industry studies such as SHRM show that merely replacing an employee can cost anywhere from 6 to 9 months of salary had that employee stayed. 


The exact number varies, of course, according to the open position— and how high up the hierarchical ladder it is. An executive position, for example, has been shown to cost as much as $14,936. The basic number it takes to hire a new employee is (if nothing goes wrong), a large $5,000. 


Also, you should factor in how long it takes to find a suitable candidate to replace your departed employee. The longer the vacancy stays open, the more money the company loses— effectively hemorrhaging away the profits brought in by the previously productive worker. 


The worst part: the more skilled and necessary the position is, the longer it’ll take for you to find a replacement. 


The global average time to replace a scientist, researcher, or other highly skilled worker is 94 days. A tech position will stay empty for a terrifying average of 62 days, while a hospitality position will take about 21 days to fill. Also in tech, that empty role will take you (on average) a grand total of 14 calls and interviews (not including those candidates that don’t show up to the meeting). 


All this time is productivity and profit lost. It’s a huge amount of work and discomfort for all involved— hiring team, HR, abandoned teammates… 


Too much time, too much work.


There are other disadvantages to letting a vacancy go open too long. In truth, these problems can appear even with a week-long hiatus, but the passing of time intensifies them. We’re talking about team trouble.


Your team was handpicked. Carefully curated. Each professional is there for a reason and, now, you think you’ve gotten to a point where the team works like a well-oiled machine. Or, at least, that’s how it was until Josh decided to leave. 


Say you’ve been on the team for a couple of years. Say you’ve got ambition and skills. If you see that your ex-coworker’s position open and you don’t get invited to interview or train for it, you’re going to be unhappy. Even more so if you have to constantly pick up the slack caused by their absence. You might even decide you’re better off elsewhere and jump ship. 


Now you, the HR manager, have got two employees to replace, valuable talent that might get hired by the competition. The results: even more indirect losses to your business.


Even if no one else leaves while the vacancy is still open, this is a situation bound to cause low morale in their team. Overworked and feeling like they’re in limbo, your employee’s productivity will drop. 


The bad hire situation.


What if the wait and the productivity loss get too much and you just hire a candidate without asking too many questions? If you test, hire, onboard, and train a candidate only to find out their performance doesn’t match what you expected… Well, it’s at least a little underwhelming. 


Maybe you didn’t pay attention to an important aspect of the role in your job description. You might have focused on the wrong questions during the interview— or it might not have been anyone’s fault, and just a mixup of interpretation and personality. 


The thing is, when your new hire performs poorly or doesn’t fit with the current team or company culture, you’ll have to start the process all over again. That means going through the long wait, interview, and training processes again— with all the implied costs. 


Believe us, you definitely want to get it right the first time. 


How to minimise the costs of replacing an employee?


Not everything is oh so doom-and-gloom! There are tried-and-true strategies to reduce turnover costs and speed up the process. What can you do to soften the blow?


  • Reduce turnover— The first thing to tackle is the root of the problem. Why do you even have to replace an employee in the first place? Barring external life events (like moving to Fiji or making a radical career switch to full-time artist or gardener), most causes for employee turnover are avoidable.

    Look into developing better onboarding and training strategies. Make sure your salary (and the added benefits like stock options and bonuses) is competitive in your industry. Work on team and managerial relationships to improve the workplace environment. And, of course, offer up-to-date perks like flexible working.


  • Train your own people— Part of minimising your employee turnover stats is to offer employees opportunities to improve their skills and talents. No one wants to be stuck in the same spot forever.

In today’s workforce, the best candidates are always looking for a position in a company that will help them grow (instead of just allowing it or, worse, holding them back). If you want to attract and keep top talent, you’ll have to offer training and education opportunities. Even better if they lead to a promotion track for dedicated employees!


  • Work with a recruiter— Using a recruiter to fill an open position might be your best hiring decision. Especially in areas with a talent or skill shortage, going the recruiter route can significantly cut the time it takes to find a great hire. We at Fulcrum, for example, know our field (digital, tech, media, marketing!) like the palm of our hands. Our job is to help you make the best strategic decisions for your business.


  • Bring tech into the hiring process— And by tech, we mostly mean video. You’d be surprised at how much it speeds up the hiring process (say yes to minimising costs and negative team effects!). By using video at this stage, you widen the pool of candidates to let in more diversity, you get more candidate engagement as well as a better experience for everyone. 


Whatever strategy (or strategies) you apply in your company, the key element is to put yourself in the shoes of your candidate or employee. What will make them want to stay? What might push them to leave? Don’t wait until things get out of hand to take action— rather, take a proactive approach. Happy turnover costs minimising! 


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