Understanding the True Cost of Employee Turnover (and How Fractional HR Can Help!)

Employee turnover can be a daunting challenge for businesses, causing disruptions and incurring various costs. Understanding the true impact of employee turnover is essential for organizations to make informed decisions and implement effective strategies to mitigate turnover rates. 

In this article, we will delve into the different costs associated with employee turnover and explore how Fractional HR services can help.

Employee Turnover Costs: Let’s Talk Numbers

When it comes to retaining top talent, understanding why employees leave, the impact it has on businesses, and how organizations can make a change is key. Today, we’re taking a closer look at some eye-opening statistics:

The Scoop on General Employee Turnover

Wondering what a good employee turnover rate looks like? On average, companies experience an 18% turnover rate in their workforce every year.

Around 6% of staff members usually leave due to downsizing or poor performance, which is known as involuntary turnover. While it helps shape recruiting strategies, voluntary turnover takes the spotlight when it comes to retention.

Voluntary turnover, where employees choose to leave on their own, accounts for approximately 13% of annual employee loss for most companies.

For a deeper dive, it’s essential to assess how many individuals are leaving key positions. On average, high performers have a turnover rate of 3%, while top-notch companies manage to keep this number close to zero.

Interesting Insights into Tenure:

Let’s talk about how long people stick around in their roles. According to the Bureau of Labor Statistics (BLS), the median number of years wage and salary workers have been with their current employer stands at 4.1 years, similar to the figures from 2018.

However, tenure varies significantly across age groups. BLS data reveals that workers aged 55 to 64 have a median tenure of 9.9 years, while those aged 25 to 34 only stay for about 2.8 years. 

In January 2020, 54% of workers aged 60 to 64 had been with their employer for at least a decade, compared to just 10% of workers aged 30 to 34.

Occupation and industry also play a role in tenure. Workers in management and professional roles tend to stay the longest, with a median tenure of 4.9 years. On the other hand, those in the service industry, often younger individuals, have the lowest median tenure at 2.9 years. Food service workers have the shortest median tenure, lasting around 1.9 years.

The Turning Point at One Year:

Pay close attention to the one-year mark if you’re aiming to reduce turnover. Surprisingly, ten times more employees quit after their first year compared to those who leave after five years.

Understanding these statistics sheds light on the challenges companies face in retaining their valuable employees. By delving into the reasons behind turnover and analyzing these numbers, organizations can take proactive steps to improve employee satisfaction, engagement, and ultimately, long-term loyalty.

Direct Costs of Employee Turnover:

Recruitment and Hiring Expenses: 

These include advertising job openings, conducting interviews, and screening candidates. It also involves the costs of background checks, pre-employment assessments, and any relocation expenses for new hires. 

For mid-sized businesses, recruitment costs can range from $4,000 to $7,000 per hire, while small businesses may spend between $1,000 and $2,500 per hire.

Onboarding and Training:

Organizations invest time and resources in training new employees, which can include orientation programs, job-specific training, and mentorship. These costs are lost when an employee leaves shortly after being hired.

Mid-sized businesses typically spend around $1,000 to $2,500 on training and onboarding per employee, while small businesses may allocate $500 to $1,500 per employee.

Productivity Loss: 

When an employee departs, there is a temporary decline in productivity as the position remains vacant or is filled by a less experienced employee. Other team members may also experience decreased productivity due to increased workload or the need to train new employees.

Studies show that the cost of productivity loss due to turnover can range from 50% to 200% of an employee’s annual salary. For mid-sized and small businesses, this cost can have a significant impact on overall performance and profitability.

Indirect Costs of Employee Turnover

Knowledge and Expertise Loss: 

Departing employees take with them valuable knowledge, skills, and institutional memory, which can be challenging to replace. It may result in a decline in productivity, lower team morale, and increased errors or inefficiencies.

Customer Impact: 

Employee turnover can negatively affect customer relationships. Clients may experience disruptions in service, inconsistency in communication, or a decline in overall satisfaction, potentially leading to customer attrition.

Employee Morale and Engagement:

High turnover rates can negatively impact the morale and engagement of remaining employees. Constantly witnessing colleagues leaving can create a sense of instability, decreased motivation, and decreased trust in the organization.

Recruitment and Onboarding Delays: 

The time required to find suitable replacements and bring them up to speed can cause delays in project timelines, hinder growth initiatives, and impact overall business performance.

How Fractional HR Can Help with Employee Turnover

Recruitment and Talent Acquisition: 

Fractional HR services can assist with the recruitment process, leveraging their expertise and networks to find qualified candidates efficiently. They can streamline the hiring process, conduct thorough background checks, and provide guidance on competitive compensation packages.

Onboarding and Training Support: 

Fractional HR providers can develop comprehensive onboarding programs and training materials that facilitate a smooth transition for new hires. This ensures that employees are equipped with the necessary skills and knowledge to contribute effectively from the start.

Employee Engagement and Retention Strategies: 

Fractional HR services can help organizations implement strategies to improve employee engagement, satisfaction, and retention. This can include conducting surveys, implementing recognition programs, and providing career development opportunities.

HR Analytics and Insights: 

Fractional HR providers often have access to sophisticated HR analytics tools, enabling organizations to track and analyze turnover rates, identify patterns, and make data-driven decisions to address underlying issues.

Compliance and Legal Support: 

Fractional HR services can assist with ensuring compliance with employment laws and regulations, reducing the risk of legal issues associated with employee turnover.

Final Notes

Employee turnover can have significant financial and operational implications for businesses. By understanding the true cost of turnover and leveraging fractional HR services, organizations can implement effective strategies to reduce turnover rates, improve employee retention, and ultimately enhance their overall performance and success.

Need a Little Help Hiring the Right People?

Taking the time to hire the right people will have a host of benefits in the long run. Finding the best fit may not be as easy as a gut feeling and a round of interviews. Luckily, Culture Works is here to help.

At Culture Works, our team is focused on value and role alignment. Our team creates processes for your hiring manager to implement that make the hiring process efficient and effective. We carefully review and screen each candidate, administer customized assessments, and deliver value and role-aligned people to fit your needs.

Read on to learn more about what we do. Then, read on to learn how to build trust with your employees.