2018-03-27 07:42:47 Managing People English Grasp the financial ripple effect that occurs when an employee leaves. Understand the expenses you can expect to pay before, during, and... https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2018/03/CEO-Reviews-Reports-Outlining-The-Cost-Of-Employee-Turnover.jpg https://quickbooks.intuit.com/ca/resources/managing-people/turn-over-cost/ How to Account for Employee Turnover

How to Account for Employee Turnover

3 min read

People come and go. It’s a natural part of any business. Still, it’s a challenge for you as a small business owner to account for this employee turnover and know how these personnel changes impact your finances. Here are a few things to keep in mind if you’re experiencing a high number of people leaving.

Calculate Your Employee Turnover

If you’re not sure if your employee turnover is that high, calculate your employee turnover ratio. This metric gives you an idea of the rate people leave. Take the number of employees that left during the past 12 months, then divide this number by the average number of employees over the same 12-month period. This percentage is the portion of your employees that have left. If you have 50 employees and five have left in the past year, your employee turnover rate is 10%. Compare this rate with other companies in your industry, and keep this number in mind as you set your future annual budgets.

Spending Money Before Your Employee Is Gone

On top of worrying about why employees are leaving, you have expenses to consider. If your stay interview didn’t work and your employee is set on leaving, there are costs to consider. Your tenured employees may have built-up vacation balances that have to be paid out. You may have a policy to issue parting gifts of farewell gatherings for certain employees.

Your Employee Has Left…Now What?

Even when your employee has left, you still have to complete their work. For some positions, it isn’t a possibility for other people to step in and temporarily do the job. Even if they can, this means they must work extra hours. If your employees are hourly, you can expect to see increased or overtime wages. It may be more reasonable financially to bring in someone for a short time. Temporary workers have the expectation of jumping right in. Instead of formal, in-depth training, they focus on specific tasks. This means you get to pay them less and control their hours based on what workload you assign them.

You Found the Perfect Replacement!

People have to work extra not only to fill in the gaps left behind by your former employee but to look for their replacement. If you don’t have a formal human resources department, you may be forced to complete or delegate recruiter duties. If you delegate, any hourly employee may be forced into overtime.

Expect to spend money trying to woo people into your company. This may be an interview over lunch once they pass the screening process. This may be a field trip to an offsite work location. You may reimburse them for any incidental travel expenses they incurred to have an interview. These expenses may not slow down once you make an offer that has been accepted. Budget and account for reimbursement of moving costs if you agree to cover these expenses. Your awesome new employee may also have asked for a lump sum upfront payment or signing bonus you have to account for.

You’re Back to Full Strength

Even when you fill the position, you have more costs to think of. If you hire someone who needs physical accommodations, you might have to pay for specialized equipment or ergonomic alternatives. You have to train the employee. It may take the employee a while to get into the swing of things, so you may still have some employees logging overtime.

In the long-run, employee turnover is just a blip on the radar. In the short-term, there are numerous costs to think of and track. As you set your budgets or hear of employees retiring, think of all the costs that will roll in before, during, and after their absence.

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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