The Costs (and Benefits) of Employee Turnover
Employee turnover is expensive. According to Gallup, a statistical research firm, it costs a business between one half and twice the annual salary of an employee if they leave.
You may be faced with the costs of recruiting, training, and waiting for an employee to become proficient—generally between six and eight months. The costs of replacing an employee may not always be sunk, however. The opportunity value of replacing employees can be higher than the cost of losing employees.
Opportunity value of future employees is the possible revenue, ideas, or positive changes they could bring with them. If this value is higher than the value the employee who left brought in, or higher than the cost of losing that employee then losing that employee was beneficial.
High Cost of Employee Turnover
Recruiting costs can be high or low, depending on your organization and the level of the position. A grocery store that is constantly recruiting and hiring cashiers doesn't have a huge incremental cost to recruit one more person.
But if you're looking for a Chief Information Officer—a highly specialized job—it might take some time to find the right fit. The time and employee hours it takes to find the right one can be costly.
Once your team has found the right fit for your opening, they will need to be trained. The cost of training, while paying for the new hire's time also increases costs.
It generally takes six to eight months for a new hire to become fully productive. Even highly skilled and experienced employees can take this long to adapt to new procedures and processes.
When Turnover Is Good for Your Business
Not all employee turnover should be viewed as negative. A certain percentage of turnover is good and can benefit a business.
What kind of turnover is good? The quick answer to this question is: if the new person can bring enough added value to outweigh the costs of recruiting, training, and getting up to speed then the former employee leaving is a positive outcome.
There are instances when you should fire employees. This type of turnover is good for your business.
You may have heard that bad employees exist because of bad managers. Not all employee problems are caused by management. There are some employees whose behavior can cause financial damage to your business. These types of employees do the minimum amount of work, create a hostile work environment, take credit for others work.
Some of these types of employees steal products, time, or money from their employers. Firing (involuntary turnover) should be automatic for these types.
Sometimes you have an employee who seems miserable at work. They are not underpaid or overworked, it's just that they aren't happy at their job.
When an employee is happy, they'll not only perform better work but can influence others positively as well. When an employee is miserable, you should have been spending time and effort trying to improve their performance an attitude with feedback, or a performance improvement plan.
If you have spent the time and money on an employee who is miserable at work it might be best if they quit, you encourage them to leave, or you fire them.
Employee Turnover is Natural
A valuable employee resignation can feel like a punch to the gut. Sometimes, it is not good for your business. You'll suffer not only in turnover costs but in the lost potential that your former employee had.
It's always worth spending time in self-reflection to figure out if you could have done anything differently. For instance, a voluntary quit is a reminder to double-check that salaries and wages are competitive and ensure your policies and practices encourage a great workforce. But it's also a time to evaluate whether the employee leaving was for the best.