Why High Employee Turnover Can Be Costly for Business
High employee turnover is when an organization experiences a frequent influx and departures of employees. Reasons for these comings and goings may vary, or can be specific to a situation. High employee turnover is one of those scenarios that can be problematic, and may or may not be measured in terms of actual dollar cost. However, it should at least be considered.
Chances are many organizations probably do not track the monetary costs associated with turnover. Other expenses have designated lines in budgets, however, "employee turnover" is not usually one of those entries listed on an organization's financial statements. Yet if the rate of turnover in an organization is not occurring at a healthy pace, this can equate to high expenses to absorb, especially if the revolving door of employees is ongoing and constant.
Here are some of the ways organizations may incur excessive costs through high turnover:
The administrative costs associated with recruiting employees can be in the thousands according to some estimates. Each time an employee leaves, the advertising, interviewing and hiring cycle starts all over again. This includes continuously posting listings on the Internet and other methods of advertising. If this is a frequent occurrence, the tangible and intangible costs will eventually begin to impact the organization's overall financial health.
Orientation and Training
Most businesses and organizations have a period of training for new employees. With each hire that arrives, someone will have to take time out of their own daily schedule in order to teach the newest team member their job and bring them up to speed with the organization's operations. The orientation and training that accompanies new hires adds up over time. If this cycle occurs too frequently, it too becomes problematic.
Hiring agents are taken away from other important tasks, usually human resources related, and those doing the training cannot effectively focus on their own jobs due to the constant interruptions associated with a revolving door of employees. In essence, high turnover is costly because it decreases the organization's ability to output at the pace they could have performed otherwise if not for the consistent need for hiring and training new employees.
Loss of Knowledge
Loss of tacit knowledge is often a problem many organizations fail to realize, and it is a key component in keeping a business running smoothly. Each member of an organization brings a level of knowledge and talent to the table. With the loss of each employee also goes any tacit knowledge that has been brought and/or attained. Depending on how fast the turnover is occurring, even employees who are working for a few months can gain valuable organizational knowledge, coupled with their own individual expertise; all of which is lost when they resign. As new employees fill available positions, they are starting with a clean slate without the knowledge of observing their predecessor. Many companies fail to capture tacit knowledge before an employee leaves in better case scenarios, but in high turnover ones, it is probably a given information has not been shared.
Employees absorbing the bulk of the work until a replacement is found can put duress on those having to take on additional tasks in the vacant position. Work will still need to be done, and when staff members are put under stress to make sure all tasks are completed, over time this can become wearisome. And employees may suffer from stress and low morale. In time, decreased morale can also affect productivity and, ultimately, hurt both the organization's productivity and profitability.
Unless management takes the time to find out why certain positions (or entire offices) experience high levels of turnover, the cycle will likely continue and along with it, incur high costs. Rather than ignore the situation and increase expenses, employers who spend time investigating what is contributing to the employee high turnover can try to eliminate, or at least reduce, the problem.