The True Costs of Employee Turnover

Many companies face challenges when confronted with staff vacancies. Time is money, and unfilled positions translate into lost revenue.  However, companies across the country have discovered that filling the openings is an easier and more efficient process once they enter into a co-employment relationship with a professional employer organization (PEO).

Essentially, a co-employer takes over the human resources management of a company while the business owner retains managerial control. PEOs handle tasks including payroll processing and employment-related tax filings, benefits management, general employment administration and regulatory compliance with federal, state and local laws for their clients. They can also help recruit employees by placing advertisements, screening applicants with telephone calls, reviewing applications and recommending candidates to interview. 

Increasing profits and reducing expenses are obviously key objectives for any company. Assembling a team of talented, productive and motivated employees is crucial in reaching those goals. Many firms don’t realize, though, that retaining valuable staff members and minimizing employee turnover can help bolster the bottom-line.

Often, company executives are unaware of the causes behind employee turnover and the associated costs. Determining those costs, learning why employees are leaving and developing a comprehensive employee retention plan allow companies to attract and maintain a team that will work hard to achieve an organization’s goals.

Like an iceberg that lurks beneath the surface, the majority of costs created by employee turnover are hidden. Some of those expenses are obvious, including advertising, recruitment, relocation, orientation and training. Other costs will not appear on a corporate balance sheet – such as the loss of overall productivity before and after the employee leaves.

Turnover equals productivity loss

Simply put, turnover is a corporate drain. When an employee gives notice – typically two to four weeks – he or she loses focus and becomes less productive. During the transition time, the departing employee often does not take on new projects or meet with clients. In many cases, the workloads of remaining staff members increase to offset the vacant position.

Vacancies are just one factor in the loss of productivity when an employee leaves. When positions are filled, regardless of the orientation and training a company provides, it takes time for a new employee to become comfortable in a new environment and reach full productivity. Hiring a new employee also affects the productivity of supervisors and peers who must spend time helping their new team member adjust.

To get an accurate picture of how much turnover costs an organization, business owners and corporate executives can ask several questions: What are we losing while projects and work are not being completed? How much potential revenue are we losing from jobs we can’t bid on? How is morale affected by overtime and additional work that remaining employees must take on?

Turnover doesn’t just affect a company’s remaining employees. Customer retention also can be affected. The expenses of losing and replacing employees also may include the costs of losing clients and winning new customers.

Develop a retention strategy

Given the daunting costs of employee turnover, the value of spending time, effort and money on retaining valuable employees becomes clear. Companies that have a strategic retention plan in place are well-armed to combat employee turnover.

The best retention strategy should begin with assessing the positions that are most critical to the company’s success and identifying the top performers in those positions.

It also is essential to determine why employees are leaving. Exit interviews can be helpful tools in obtaining feedback from departing employees. For existing staff members, confidential climate surveys are an option. Periodic wage and salary surveys are measures companies can use to ensure compensation levels are competitive in the local market and with competing firms.

Though competitive salaries and benefits – such as health insurance and 401(k) plans – are vital recruitment and retention tools, they are not the lone solution to attracting and keeping productive and talented employees. Larger firms are eager to lure top employees and managers from smaller companies with promises of heftier salaries and fancier perks.

If a company’s turnover ratio is high, the problem may be rooted in the corporate culture. Is the company deliberate in its efforts to keep top-performing employees happy? What is the firm’s vision, philosophy and mission statement? Do they reflect an organization where employees will want to work? Creating an atmosphere employees look forward to working in every day and letting them know they’re appreciated also is important.
Often, a new employee leaves a company because he doesn’t feel welcome or comfortable. Instead of offering just the traditional brief orientation, develop a long-term program that allows the new hire to learn from a senior employee over a period of weeks instead of hours. Assigning a mentor to the new employee can give him added confidence in his new environment and position.

A recognition and reward program also can be effective. Recognizing employees for their hard work provides multiple benefits for companies. Publicizing a staff member’s accomplishment in media outlets such as local newspapers, regional business publications and national trade magazines will not only make the employee feel appreciated, it also will provide positive exposure for the company. Honoring employees in the company newsletter and through employee appreciation events are other methods of developing loyalty among talented staff members.

Become a preferred employer

Before a company develops a loyal team, it must have the means to attract the players. To become a preferred employer and develop a comprehensive employee retention program, small and medium-sized companies across the country have turned to PEOs.

Essentially, PEOs offer their clients and worksite employees the services of a human resources department within a large corporation. Few small businesses can afford a full-time staff that handles responsibilities such as payroll processing, employee benefits management, human resources and risk management. PEOs provide HR advice to their clients, including employee retention strategies that leave them better equipped to compete for talented employees.

Benefits offered by PEOs to their employees include health insurance, retirement savings plans, disability insurance, life insurance, dependent care reimbursement accounts, vision care, dental insurance, employee assistance plans, job counseling and educational benefits. Not only do PEOs offer their employees a strong benefits program, they also eliminate the headaches of managing them for their client companies.

Many companies face challenges when confronted with staff vacancies. Time is money, and unfilled positions translate into lost revenue.