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The true cost of high staff turnover

The true cost of high staff turnover

If you're constantly trying to hire new people to replace staff, your focus will likely be on backfilling rather than moving forward. Here's how to calculate the true cost to your business – and some steps you can take to break the cycle.


Direct costs

Recruitment costs are the most obvious expenses you’ll be facing after losing an employee. They can include advertising the position, paying a recruitment agency and conducting aptitude and medical tests. The departing employee might also be owed a termination payout such as pro-rata long-service leave. ‘Hidden’ recruitment costs can include the hours you put into interviewing candidates, reviewing CVs and checking references.

You’ll also need to induct and train the new employee. Even the most highly skilled recruits will need to get comfortable with your processes, workplace culture and branding. Workplace Info recommends using 50 per cent of the new worker’s salary as the cost of induction until they are as productive as their predecessor.

Indirect costs

When an employee leaves your company, the work that is no longer being performed by them could translate into lost sales, production delays and postponed product releases – all costing you revenue and competitive edge. Co-workers who pick up the slack until a replacement is found may be distracted from their own performance targets. Likewise, managers will have to put time and energy into inducting the new employee. Needless to say, the extra stress on your staff could push your turnover rate even higher.

High turnover can also affect your customers. Clients who find themselves speaking to a different person each time they call your company, for example, may become frustrated and take their business elsewhere.

Breaking the cycle

Many sources put the cost of replacing a middle-level employee at around 150 per cent of their annual salary. Often, the reasons behind high turnover are the same as those behind presenteeism, so it pays to look for signs of reduced employee engagement, such as arriving late at the office, doing the bare minimum and taking more sick leave than usual.

For most businesses, it’s cheaper to keep current employees productive and motivated than it is to source and train new ones. And while there’s no perfect work environment or salary that will keep them on board forever, it’s certainly worth calculating your own turnover costs to determine how much you should be investing in your existing staff.

To break the cycle and keep staff turnover to a minimum, it's important to motivate your staff to come with you on your business journey. Find out what you can do to improve employee engagement in your company.

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