How Much is Staff Turnover Costing You?

Every year, millions of dollars are lost because of the effects of work stress. This loss is from several causes. There are direct financial costs from staff turnover, accidents, sickness and absenteeism, poor performance, and wastage. There are indirect costs in terms of grievance proceedings, and individuals' medical treatments. There are also "ripple effects" whereby the poor performance of a few may affect the performance of many. This often appears as delays, conflict, or poor customer relations resulting in loss of business.

What happens time and again, is that a wave of complaints will arise from a particular department or section, usually with one or two people seen as the chief architects of the trouble. This is rarely the case. While not innocent, these people are not usually the only cause of the problems. They are more like lightning rods, which focus and intensify the ambient dissatisfaction. If enough of this dissatisfaction is present for long enough, people will begin to hate their jobs. Generally, if people hate their job enough, they will quit. The resulting staff turnover is the source of some of the major costs of job stress.

The Hay Group estimates that 50%-60% of someone's salary will be spent in order to replace them, but estimates as to the actual costs vary widely. Here's one of the simpler ways to calculate the cost for your company for each lost employee over the past year.

Let's break this down.

Say a dissatisfied employee takes three months to find another job. Assume that over that three month period they "wind down" by 25% of their normal capacity, and/or quality of work. For example, this might involve poor attention to detail or standards, "hiding" from the job, long toilet breaks, staring out the window, looking for other jobs on your time, or lack of commitment. In the extreme we see absenteeism, accidents, sabotage, conflict and disciplinary procedures.

So essentially, over that period, you could be giving away 12.5% of their salary. Often this takes a lot longer than three months, and the final output is a lot less than 75%.

Next there is the cost of supervisors', and/or other managers' time. This will be spent during that three month wind-down time, during the replacement process, and in training the new recruit. This can include any extra time spent in discipline or supervision. It will occur in selection interviews and preparation for them, and completing the paperwork after selection.

There can be significant costs in advertising, or using a recruitment agency, depending on the position. Then there is the cost of orienting and training the new recruit. This involves managers' or supervisors' time spent with the newcomer. There is also a time period before the new employee learns their job. This can also apply to absorption of the company culture, learning of local "short-cuts". Essentially this learning curve mirrors the decline in the first section. For example, beginning at a 75% capacity, they might take three months to come up to speed, so averaged over the 3 months, that 25% is a constant deficit of 12.5%. This of course will vary, across jobs and people. Next there are the often more intangible, but very real, ancillary costs caused by the "ripple effect" of a disgruntled employee. These involve the effects on others before the person leaves. They include: lost customers, leads not followed, contribution to poor morale, conflict, litigation, violence, or injury to others, and sabotage of plant, or computerised processes.

Lastly, but certainly not least, there are the also intangible costs of the worry, anguish, grief, and headaches caused by these people to those who have to live and work with them. No monetary value can be attached to this. Nevertheless, it counts, bigtime.

Do this process for each unhappy employee who has left in the past year, and add them.

Is this money that the company can afford to lose?