How much does staff turnover really cost you?
Get a group of HR professionals in s room, and you’ll often hear them talking about the high costs associated with staff turnover.
But just how high are they? According to new research staff turnover costs British companies at least £4.13bn every year as new employees take up to eight months to reach optimum productivity levels.
Oxford Economics and income protection providers Unum say that the average fee for replacing a departing team member is £30,614. This figure is made up of two typical amounts:
- £5,433 for logistics, such as agency fees and advertising.
- £25,182 for wages during the time when a new employee is yet to reach optimum productivity level (believed to be an average of 28 weeks).
Defining staff turnover
Staff turnover, at its broadest, is the extent to which the employer keeps hold of its employees and is usually measured as the proportion of employees with a specified length of service (such as one year or more). It is expressed as a percentage of overall workforce numbers.
I recent years voluntary turnover rates have decreased as a result of the economic conditions, however this is a pattern that is rapidly changed. Redundancy-related staff turnover has become more commonplace.
Turnover levels can vary widely between different industries and occupations. Typically the highest staff turnover levels are found in retail, hotels, catering and leisure, call centres and among other lower paid private sector service groups.
Who is the most expensive to replace?
The research found that legal employees are the most expensive to replace at an estimated cost of £39,887, with accountancy employees following closely behind with employees taking 32 weeks to adjust at a cost of £39,230. The total bill for both sectors is £1.4bn combined.
In the media and advertising sector, the time taken to reach optimum productivity is just 20 weeks, yet this still costs businesses an average of £25,787 per replacement employee. This contributes to an overall annual fee of £184m for the industry.
IT and other technology sectors are the most affected by high staff turnover. The overall sector figure is approximately £1.9bn per year. Workers take more than seven months to reach their peak, at a cost of £31,808.
Out of all the industries surveyed, the cheapest employees to hire are retail workers, costing an average of £20,114 over 23 weeks.
What contributes to the cost?
Staff turnover costs tend to be mainly hidden. Apart from the obvious initial recruitment costs such as job adverts and agency fees they don’t directly appear against the business’ profit and loss sheet, but the impact can in fact be massive.
Here are some additional problems that arise due to high turnover on top of the lower productivity identified by Unum:
When an employee leaves, in the short term their co-workers often pick up the extra workload. However if this goes on too long your former employee’s co-workers will get stretched, and the quality of their work and productivity will fall.
Whilst the employee’s co-workers might know broadly what they did, they don’t have that individual’s specific knowledge such as contacts, passwords, exactly what information people in other departments need or efficient ways for getting the job done.
Training and induction
There’s not just paid training costs to take into account; there’s also the time it takes another member of staff to provide training on internal systems such as a CRM system or the business development process.
HR and management time
There’s the time and the opportunity cost that is incurred by the HR team and managers briefing the role requirements, advertising it, reading CVs, interviewing, talking to each other to determine who the best candidate is and then sorting out employment contracts and start dates.
At the end of the day, there’s no doubting that staff turnover is an expensive business. Unfortunately, it can never be completely avoided but, by treating your staff well and offering competitive rewards and benefits, companies can certainly minimise its effects.
John is responsible for the motivation division of p&mm ltd and a Director on the board of the IPM. Specialising in developing, implementing and directing many large scale staff motivation, recognition and employee communications programmes.
John Sylvester has been largely responsible for the development and growth of the motivation & incentive discipline with P&MM.
Having worked in the motivation agency business since completing a business degree in 1984, John joined P&MM in 1989 and the main board in 1996.