2018-01-31 00:00:00Managing PeopleEnglishWork to decrease employee turnover to help your company save money by cutting down on recruiting, training, and other hiring costs. Keeping...https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2018/02/Happy-Employees-Working-At-Job.jpghttps://quickbooks.intuit.com/ca/resources/managing-people/reduce-turnover-minimize-costs/Minimizing Costs Through Lower Employee Turnover

Minimizing Costs Through Lower Employee Turnover

4 min read

Every employee you hire is an investment in your business. If the employee stays with your company for years, you get a great return on investment. Employees who leave soon after starting, though, cost your company money. It’s tough to put a dollar amount to the cost of employee turnover, but keeping employees on staff for as long as possible helps your company’s bottom line in many ways.

Cost of Hiring an Employee

An employee’s salary and benefits are obvious expenses of the hiring process, but your company pays a lot more than just the base salary to have an employee. Before hiring someone, you have the high cost of placing ads and the time cost of creating the job description. You have additional time invested during the recruitment and hiring phase. Even after the employee starts, you continue investing money into that person.

Some of the expenses of having an employee include:

  • Recruitment costs
  • Hourly rate of staff members who screen resumes, conduct interviews, and handle onboarding
  • Fees for background checks
  • Recruiting fees if you use a headhunter
  • Training costs
  • Supplies, office equipment, and other items for the employee

When an employee quits shortly after being hired, you’ve basically wasted those costs, and you have to pay many of them again for the replacement employee. Training costs can be particularly frustrating to a small business owner. You pay for your employee to learn more about the field. The departing employee gets to retain that knowledge and potentially use it in a future career while you’re left with an investment that doesn’t really pay off since that knowledge leaves your company.

Intangible Costs of Turnover

Actual dollar amounts that you pay as part of having an employee are only part of the equation. When an employee leaves, you have costs associated with that vacancy that are difficult to evaluate. Productivity decreases at least temporarily due to being down a team member. Decreased productivity means your company isn’t performing at peak levels, so you’re potentially missing out on income.

Other employees often pick up the slack until you hire someone new. Depending on how your employees are paid and how much extra work they have to do, you may end up owing them overtime pay for the extra hours they put in. Since overtime in Canada is typically 1.5 times the salary, that extra pay adds up quickly. Staff morale may decrease with the increased workload. If your staff starts to feel overworked, productivity and quality of work can also decrease, which causes additional harm to your profits.

Varying Cost of Turnover

The cost of turnover depends largely on the position within your company. An entry-level position with no special training isn’t as big of a loss as a specialized position with a high level of responsibility. Estimates for the cost of losing an employee range from 16 to 213 percent of the annual salary. Employees at the lower end of that estimate are often hourly positions that are easy to train such as cashiers in a retail environment. Losing an executive could land closer to the high end of the range. Since that employee’s salary is significantly higher than an entry-level position anyway, the overall cost of losing that person can be quite high.

The employee’s performance also affects the cost of losing that person. A dedicated employee who goes above and beyond is much more valuable to your small business than someone who doesn’t care, does the bare minimum, or constantly makes mistakes. Losing an employee who performs poorly may actually help your bottom line in the long run. Productivity is already low with an employee who doesn’t do the job well. You also face costs for mistakes the employee makes, whether that’s paying someone else to fix the problem or compensating customers for mistakes made by the employee.

Cutting Costs by Reducing Turnover

You can keep your operating costs low by actively working to reduce turnover. It all starts with the recruitment process. Screen applicants carefully to ensure they have the qualifications needed and the personality and skills to handle the job. Behavioural interview questions help you learn more about the potential employee to determine if the hire is a good fit with your company’s culture. A lack of cultural fit can lead an employee to quit due to feeling out of place or not working well with the team.

The experience during onboarding can shape a new employee’s attitude about the company. Have a workspace ready for each employee and an organized plan for training your new hires. Make new staff members feel welcome from the beginning.

Ongoing efforts to keep staff engaged and happy can help reduce turnover. Offer employees unique and valuable benefits to set yourself apart from other employers. Those benefits don’t have to be expensive. Little things like allowing pets in the office, offering flexible vacation time, and encouraging volunteerism can encourage employees to stay. Employees also appreciate being valued and having their input taken seriously. The way you treat your employees is often an influential factor in retention.

While you might struggle to put an exact dollar amount on losing a good employee, it’s easy to see your best option is hiring once and retaining that employee as long as possible. Working to keep employees engaged and satisfied helps reduce turnover and ultimately saves your company money.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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