What is the Cost of Employees Leaving?


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What is the Cost of Employees Leaving?
By Sarah James

While the implementation of an effective exit interview process will help point to the reasons why people depart your business, you rarely know the cost of each departure.

As the costs can be so high it is important to understand the reasons behind employees leaving.

Staff Turnover Costs - image

Every time an employee leaves your organisation it costs time and money to replace them. Cost estimates of exactly how much cost is incurred vary depending on the position and the person who is leaving and depending on the research you consult. If the person leaving fulfilled a Senior Position and they held this position for quite some time then the cost can be as high as 200 to 250% of their annual compensation. And with those costs in mind strategic HR Directors need to keep a close eye on the turnover rates within their organisations and have a clear understanding of why employees exit.

How do you calculate the cost of an employee leaving?

There are several methods of capturing the cost of an employee leaving Ė all tend to focus on quantifying the time and money associated with hiring a new employee. The most basic way to determine the cost of an employee leaving is to quantify the time spent in each of the following areas:

  • Lost productivity Ė tends to become even more important when the role is one that is difficult to fill
  • Any additional time that other employees charge back to the Company in the form of overtime or added shifts to cover for the vacant employee
  • Cost of orientation and training of a new employee, and
  • Time spent on recruitment (ie job advertising, resume screening, interviewing, onboarding etc).

And so because the costs can be so very high it is important to understand the reasons behind employees leaving.

Why do Employees Exit?

Establishing why employees exit is a fundamental part of being an effective HR Leader. Without an understanding of why employees exit you have no way of even beginning to address any underlying causes of churn. Research over the years has shown that there are lots of defining reasons why people may leave an organisation. The most widely touted of these reasons is rarely money. In fact the number one reason many people claim that employees leave is due to a bad boss or immediate supervisor. That said how do you confirm or deny if this is the problem in your organisation?

Exit Surveys tell you why Employees Leave

An effective exit interview survey process is required. Using an online survey software tool to ensure that you get all of the advantages online systems can offer is also a fundamental of determining what underpins turnover in your organisation.

If your goal is simply to determine why employees exit you need to ask them: ďWhy have you decided to leave the organisation?Ē This will help you to uncover any losses that were avoidable due to employee job dissatisfaction, lack of career opportunity, poor management or leadership, conflict with others or harassment or other sources of dissatisfaction that caused the employee to depart. Armed with this information you can begin to make changes to curb this trend.

What Employee Turnover rate is considered Problematic?

You canít manage what you donít measure. And if you donít measure it, you canít manage it because you donít know what constitutes a Ďbadí result. That said there is a rule of thumb which again may be different depending on your Industry, but let me state for the record that I believe that if your turnover rate is higher than 20% youíve got a problem. Not just a financial one either. At 20%+ turnover, your exiting employees will be damaging your employer brand, customers will be receiving a poor experience and the culture in your organisation will mean that the mood and productivity is a lot lower than it should be.

Again I would say that at 20%+ exiting employees you need to understand why that churn is happening. And if you arenít sure how Ė start with an online exit survey that can help you uncover the trends and demystify this area for you.

To summarise, the cost of an employee leaving a Company can be very high both in terms of money spent and in terms of time required to rehire. And so it is important that all organisations take the time to understand why employees exit.


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