The True Cost of Employee Turnover

01/22/2021

Staci Hegarty, IpX Global Director of Equity & Inclusion

Turnover - there are a lot of reasons for it: the economy, company-wide reduction in force, new opportunity, automation, the employee was a “bad hire” or missed performance expectations, perhaps the employee had a life change that forced them to make a choice between their job and their other responsibilities, the list goes on and on. The uncertainty brought on by COVID-19 has only increased the problem, especially for women and more specifically, women of color.

Turnover sucks up time, money, resources, and morale. Most studies indicate that it costs a company approximately 30% of the departing employee’s salary to hire a replacement and may take up to two years for the new employee to gain proficiency in their role. That’s a cost of $15,000 to replace an employee making $45,000 a year! Are you wondering how that could be? Try this calculation to see how quickly the costs add up. 

Of course, it is unrealistic to try to bring the employee turnover rate to zero (althoughI happen to work for a company that has managed to do just that for the past two years). Some things are outside of our control, such as a global pandemic. Instead of focusing on those things, focus on the other things. This is the part that can make leaders uncomfortable. What exactly is a “bad hire”? Was the employee truly bad? By that I mean were they grossly unqualified for the role, abusive, dangerous, or otherwise irredeemable? That really doesn’t happen that often.

What about the employee who leaves for a new opportunity? More money, flexible hours, better benefits or a promotion in title or responsibility are all very attractive. If another company sees the potential in your employee, why don’t you? After all, you actually know this person on some level. You probably know their strengths, their weaknesses and hopefully their career goals. Waiting until an employee gives their notice and then making a counteroffer to keep them sends the message that the better opportunity was always there, the company just had to be forced to offer it. If your process isn’t transparent and equitable it will alienate your employees and cause them to lose trust, even if they stay – for now. 

Exit interviews are notoriously inaccurate for tracking the reason that employees voluntarily left the company. Very few people are willing to give the unvarnished truth if a culture is toxic, racist, sexist, homophobic or ableist, especially if the soon-to-be former employee needs to rely on the organization to provide a favorable reference in the future. No one wants to be labeled as overly sensitive, or as the person who “plays the race card,” or “can’t take a joke.” They may go to sites such as Glassdoor to post a scathing and anonymous review, but they won’t tell your Human Resources specialist. 

If your company is trying to create a more diverse and inclusive culture, those online reviews may be hindering your efforts. If your open position ads say that you offer a diverse and inclusive culture, yet the anonymous reviews say otherwise, you are not going to achieve your goal. It may be time to get a third party involved. A baseline employee survey can offer valuable insights into your existing culture and help your senior leadership team formulate a plan to address the cultural issues that are impacting your turnover rates. What’s the ROI? Run the turnover cost calculation using the average salary at your company. Chances are it is less expensive to do the survey and have the results analyzed than it is to replace just a couple of employees. Diversity, Equity, and Inclusion initiatives don’t have to be all-encompassing to start making a difference, but they do have to start somewhere.

IpX’s RISE platform can support your organization’s efforts to create an inclusive environment that drives employee retention.