High employee turnover rates are one of the most costly parts of running a business; and not just in a monetary sense. While hits to the bottom line are indeed an immediate concern, the real damage is done under the surface in less obvious ways. Like a crumbling foundation, high turnover's unseen costs are lasting, damaging, and can take years to recover from
Here, we'll go over the most significant costs of high turnover rates to showcase why you should place more emphasis on retaining talent. Let’s dive in!
Calculating monetary costs of employee turnover
The financial costs of a high turnover rate largely depend upon the business' size, industry, and type of position. So naturally, a single, entry-level position is bound to have less of an impact than a C-Level executive resignation. This is setting aside concepts such as turnover contagion and other underlying workforce issues, which we will get into later.
A good rule of thumb for calculating the monetary costs of employee turnover is to include the costs of recruiting, hiring, training, severance and bonus packages, and the stunted progress associated with other staff picking up the slack.
Some of the components of this equation are more easily measured than others, although experts estimate that replacing an employee will cost up to four times their salary. That all being said, the real kicker isn't the out-of-pocket costs of turnover; it's how it affects the rest of the company.
Hidden costs of employee turnover
Turnover is a natural part of any business' lifecycle, but at higher rates, it becomes problematic. Let's examine how some of the more significant costs associated with high turnover rates affect your teams and business as a whole.
Even more turnover
Unfortunately, one of the most common side effects of turnover is…well, even more turnover. This domino effect has been called 'turnover contagion' in the media; here's how it works:
When one employee resigns, it's up to the rest of the team to take on their responsibilities. In turn, more strain is placed on the rest of the team, increasing the likelihood that they, too, burn out and resign. If another employee cuts ties with the company, the problem further compounds as exponentially more responsibility falls on the shoulders of the remaining team members. Failure to promptly fill staffing gaps further exacerbates the problem and increases the likelihood that others will depart.
Stopping this snowball is difficult once it gets rolling, but not impossible. Seeking the assistance of an employer of record (EOR) is an excellent way to break the cycle of turnover contagion as quickly as possible. Omnipresent, for instance, operates in over 160 countries to help companies all over the world find remote talent to fill staffing gaps quickly, efficiently, and compliantly.
It's often a sad day when a team member decides to move on to new pastures, particularly if they were well-liked. But from an organizational standpoint, the company doesn't just lose valuable talent; they lose a personality. Perhaps that employee inspired others to be their best selves. Or maybe they were great at teaching complex concepts to allow ease of learning. No matter what, the team's dynamic inevitably shifts, and it's up to team leads to ensure it isn't for the worse.
Regardless of what's lost when valuable talent exits a company, high turnover is bound to negatively affect a team's morale. This is further compounded when turnover contagion keeps adding further responsibilities that may be outside of the rest of the team's scope. Additionally, if a team's morale is in free fall with no communicated plan of action, the likelihood of other team members resigning increases.
Loss of productivity
The most obvious and one of the more significant effects of a high turnover rate is how it affects productivity. When the rest of the team spread themselves thinner to cover a vacant role, more errors are bound to occur, overtime hours increase, and burnout becomes inevitable.
It can take a full year (or more, depending on the job) for a new hire to become as productive as an employee that recently exited. Depending on your company's industry, loss of productivity, especially if it's sustained for a long time, can be catastrophic. Finding key talent quickly and efficiently is crucial to recuperating productivity losses and restoring morale.
Loss of institutional knowledge
The loss of key team members carries a cost that's not often realized — the loss of institutional knowledge. When an expert in their field quits, they take valuable knowledge with them. Sure, new hires will eventually get up to speed, but an intimate knowledge of the industry and the company’s inner workings will take time to nurture.
Additionally, once key talent departs, they can no longer impart that knowledge onto the rest of their team. This can further exacerbate any existing skill gaps and even slow productivity in the long run.