The True Cost of Employee Turnover
Retain or Recruit?
Losing an employee, whether through resignation or termination, has implications that stretch far beyond the surface. It's not just about the financial toll; it's about the overall impact on your organization. Many factors play a role towards the final decision of resigning from employment or having an employee terminated.
So, let's delve into the real cost of hiring a new employee versus retaining a current one, considering both the tangible and intangible factors that come into play.
Hard Costs of Replacing an Employee
Around 33% of the total turnover costs are hard costs, which encompass:
1. Recruitment: According to the Society for Human Resource Management (SHRM), the average cost of recruiting a new employee hovers at nearly $4,700, coupled with a time frame averaging around 40 days. Collaborating with a recruitment agency can expedite the process by drawing from their pool of pre-qualified candidates. Nonetheless, there is still a cost, and it is still time-consuming.
2. Onboarding: SHRM estimates that the average onboarding expense per new hire is roughly $4,100. Neglecting or mishandling the onboarding process can lead to diminished productivity, increased turnover rates, and reduced employee engagement, which could ultimately cost your organization much more in the long run. Many companies do not utilize the first days of onboarding effectively, which is a potential soft cost.
3. Training: Employee development doesn't conclude after onboarding. In 2015, the Association for Talent Development reported that organizations invested an average of $1,252 per employee in training and development initiatives, highlighting the ongoing investment required. This could be a higher cost factor for specialized positions or membership coverage required for certain roles or positions.
Soft Costs of Replacing an Employee
Soft costs, making up about 67% of the high turnover cost, are equally significant, encompassing:
1. Human Errors: It is natural for employees, regardless of tenure, to make errors. However, with new employees, still learning the ropes, tend to make even more mistakes, adversely affecting your bottom line.
2. Lost Knowledge: Departing employees take invaluable institutional knowledge with them, acquired through their training and tenure with your company. While it's hard to quantify, this loss represents an intangible cost that should not be underestimated.
3. Low Morale: Low employee morale carries a hefty price tag. Dissatisfied workers cost According to Gallup, actively disengaged employees cost the U.S. between $450 billion to $550 billion per year in lost productivity. Additionally, the cultural impact of frequent employee departures cannot be overlooked.
In summary, retaining an existing employee proves to be a far more cost-effective strategy than recruiting a replacement. Retained employees come with consistent expenses such as salaries, benefits, ongoing training, and potential raises. In contrast, hiring a new employee triggers a cascade of supplementary costs that may not be recouped for years. To this end, companies have a degree of control over facilitating a healthy working environment. Cultivating the right team from the beginning or working to make the necessary changes to build a strong cohesive team. This ranges from work-life balance to proper workload assignments, constructive performance reviews, growth opportunities, and much more.
Bonus: Unlocking the Potential with Specialists or Consultants: Leveraging Existing Resources
For organizations seeking to optimize their existing resources, including human resources, hiring a consultant can be a game-changer. Consultants bring specialized expertise to the table, helping streamline processes, enhance employee retention strategies, attract the right stakeholders, and maximize the potential of your workforce. By leveraging the knowledge and experience of consultants, businesses can ensure that their human resources efforts are not just effective but also cost-efficient, ultimately driving long-term success. Consider a Human Resource Consultant like Tiersa Hall, a Career Strategist such as Gretchen Skalka, a Marketing Professional such as Adlai Moss, or a Compliance Project Management Consultant like Shelly Forde of Shell Compliance. Utilize your resources and think outside the box. Contact a specialist or consultant today.
Your organization deserves the best. Let us be your trusted partner in preparing for these changes. Contact us today to embark on a transformative journey toward a brighter future.
