The Monetary and Non-Monetary Costs of Turnover

Whether you are a small startup business, or a member of the Fortune 500, few executive-level employees understand not only how much money their organizations lose by failing to retain key employees, but also the non-monetary costs an organization faces when turnover occurs. Gallup, a polling and consultancy group, estimates that U.S. businesses currently experience a cost of roughly $1 trillion in voluntary turnover. Further, they report that only 15% of employees worldwide are engaged at work, and 51% of employees are currently actively looking for new jobs. It is important for organizations to understand how to calculate the monetary costs of turnover, and even more important to recognize and mitigate the impact of the non-monetary costs of turnover.

Monetary Costs of Turnover

Select a job that has been experiencing a high turnover rate.  Calculate the full cost of that job by entering the average wage for that position on Line 1 and then multiplying it by 130% to include benefits costs.  Next, multiply the total wage by 25%.  This cost per employee may then be multiplied by the number of ex-employees in the same job on Line 6 to arrive at the total cost of turnover in this position.

Here are the steps:

1. Annual wage                           $__________
2. Gross-up for benefits              x         1.30
3. Total wage                              $__________
4. Turnover cost                           x         0.25
5. Cost per employee                $__________
6. Ex-employees                           x _________
7. Total turnover cost               $__________

Example:

1. Manager’s salary                     $        67,480
2. Gross-up for benefits              x            1.30
3. Total wage                               $        87,724
4. Turnover cost                           x            0.25
5. Cost per manager                  $        21,931
6. Ex-managers                            x               10
7. Total turnover cost                $       219,310

Non-Monetary Costs of Turnover
In addition there are also additional hidden, non-monetary costs associated with employee turnover that may harm the workplace. One of the first changes an organization will notice when an employee leaves an organization is a decrease in employee morale. As employees leave, those who remain may have lost a work friend, which impacts employees more than one would think. According to a study by Office Vibe, a surprising 70% of employees stated that having a friend at work is the most crucial element to a happy work life. To compound that statistic, the study also showed that 50% of employees with a best friend at work reported feeling a stronger connection to their organization.

Employee turnover may also lead to decreased productivity and decreased employee engagement as employers have less employees to get the same amount of work done. Inevitably, this means that the exiting employee’s work will get divided among employees, or given solely to one employee to take on themselves. As the remaining employees become overwhelmed with more work, their stress levels rise, making them far less likely to be productive and more likely to become disengaged.

Decreased morale, decreased productivity and a lack of engagement from employees all make up the recipe that leads to reduced customer satisfaction and potential loss of customers. When employees are not happy or engaged, that likely trickles down to those who an organization serves, e.g., clients, customers, residents, etc., who may also feel and notice the impact of turnover that has occurred within the organization.

Additionally, when employees leave an organization, they ultimately take with them the valuable knowledge about the organization which is very difficult to replace from external sources. Take, for example, a sales team that loses a key sales member. The organization doesn’t only lose the employee, they lose the knowledge that the employee had regarding their specific customers’ or clients’ needs, budgets, contact preferences and other valuable knowledge about the relationship. This also may cause stressed customer or client relationships if the appropriate information sharing techniques, such as cross-training, has not occurred.

While the turnover calculation above seems simple, most organizations do not know their turnover costs. The cost of turnover not only impacts an organization’s bottom line, but also has the potential to negatively impact the morale, productivity and engagement of the organization’s remaining employees. Organizations that have experienced turnover should be calculating their turnover costs to determine how it is impacting their bottom line. More importantly, organizations experiencing turnover should ensure that they are listening to their remaining employees to ensure they do not become overwhelmed and ultimately leave.

For additional information on the cost of your organization’s turnover, both monetary and non-monetary, please contact us at www.newfocushr.com .

Rewritten by: Patrick McKenna, SHRM-CP

                         HR Consultant

                         06/10/2022

Originally Written by:  Kristen Deutsch, M.B.A., CCP

                                        President

                                        01/15/2017

Sources:

https://blog.hubspot.com/marketing/workplace-friendships

https://www.gallup.com/workplace/247391/fixable-problem-costs-businesses-trillion.aspx