Unemployment is low and companies are having a hard time keeping their businesses fully staffed as employees are constantly on the lookout for better jobs. So many employees have quit their jobs in the last year that the phenomenon has been named The Great Resignation. Unfortunately for employers, high employee turnover is extremely expensive. Data from Gallup shows that a lack of employee engagement is affecting loyalty to the businesses they are working for with only 35% of US workers engaged at work. A shocking 51% of employees are actively looking for new jobs.
High employee turnover affects businesses negatively in lost money but also in decreased morale and productivity. In this article we will take a look at the true cost of employee turnover.
Why do employees quit their jobs?
Some of the most common reasons that employees quit their jobs are:
- Feeling disrespected in the workplace
- Lack of opportunity for advancement
- Found a job with better pay
- Found a job with better benefits
- Found a job with more workplace flexibility
- The employee receives a job offer they don’t feel they can refuse
Reading through this list, it is clear that in order to improve employee retention in 2022 it’s important to treat employees with respect, offer opportunities for advancement, provide as much workplace flexibility as possible, and offer competitive pay and benefits. Other ways to decrease turnover are to create a great company culture, and provide thorough training and a meaningful onboarding process.
The True Cost of Employee Turnover
The cost of employee turnover is very high. There are many turnover costs to consider:
- Lost productivity while the job is open and the employee is being trained
- Advertising costs to recruit for the open job position
- The time it takes HR to recruit and interview candidates
- Fees for pre-employment assessment checks, background checks, and drug screenings
- Costs of training and onboarding
So, what do these costs add up to? According to the Society for Human Resource Management (SHRM), on average it costs a company six to nine months of an employee’s salary to find and train their replacement. For example, if a salaried employee who makes $60,000 per year quits your company, it will cost $30,000 – $45,000 in recruiting and training costs to replace them. Companies need to retain salaried employees in this pay scale for an average of 6-9 months just to break even on the costs they incurred to recruit and train them and these days, that is hardly a guarantee.
Replacing hourly employees isn’t cheap either. A study conducted by the Center for American Progress found that the cost of losing an hourly employee can be anywhere from 16 percent to 213 percent of their annual wages.
Non-financial costs of employee turnover
Apart from direct financial costs, there are other costs to consider when it comes to high employee turnover, including:
- Damage to company reputation
- Low employee morale and confidence
- Lost customers due to poor customer service (not enough staff to provide good service)
- Poor quality or delayed work – projects may not be completed with the same level of quality or in a timely manner because of lack of employees
- Employee burnout as remaining employees have to make up for extra work
- Employees asking for bonuses or raises because they are expected to do extra work
- Bandwagon effect where more employees decide to quit/start looking for other jobs
- Difficulty filling vacancies within a tight labor market
- Chaotic situation for HR
How to reduce employee turnover with the help of a PEO
Small businesses that partner with a Professional Employer Organization (PEO) have 10-14% lower employee turnover because they are able to offer better health insurance and other benefits like direct deposit, paycards, and paperless solutions for time-in/time-out systems and health insurance claims.
Need help reducing employee turnover? We’ve got you covered through HR outsourcing! When you partner with Makai HR you can get on with the business you are trying to grow while we take care of your employee needs from payroll to taxes, health insurance/benefits and worker’s compensation. You also gain peace of mind that you are compliant with all of Hawaii’s employer laws (if you’ve ever looked you know that the list is very long and changes happen). When choosing a PEO to partner with, there are many things to consider including cost, services, and technology solutions.
With the cost of doing business in Hawaii at record highs, we know how important it is to keep labor costs in line with revenue. Our plans are priced competitively and include value-added services like time-in/time-out systems. Our three tiers of PEO service plans are tailored to the size of your business and specific needs. We offer a 100% paperless solution which means that your employees can manage their needs through a computer, tablet, or phone. We can truly improve your employees’ work benefits while freeing you up to run your business.
What are you waiting for? Companies that partner with a PEO benefit from 7-9% faster growth, 10-14% lower employee turnover; and they are 50% less likely to go out of business. Contact us today to get started!