How to Work Out Employer Turnover Costs
No one likes to be left high and dry. When an employee walks out or moves on to a better job, you are left with the problem of filling their vacant seat, but that takes time and effort. It also costs your company money. Whether it is through termination, retirement, or just normal work force attrition, you will need to hire new workers to fill in the gaps at some point. Be prepared to estimate and plan for your employee turnover costs.
What are Vacancy Costs
After your employee is gone, you will notice that the chair once occupied is now empty. No one is there to take calls or answer questions. Less than optimal staff leaves you with lower productivity.
A vacancy affects your business in a number of ways:
-Fewer sales made
-Less positive contact with customers
-Reduced capacity to meet deadlines
-Increased demand on your other staff
-Unused equipment continues to depreciate
All of these costs add up over time. The longer it takes to fill the vacancy, the higher these costs go. It can be difficult to take their measure, but to begin with you will need to estimate the marginal productivity of your workers. Performance records are a great tool for this.
You may discover that your other staff members are able to pick up the slack, but this also costs you more money. You will have to pay more overtime, and your other employees may become overworked. Your managers and supervisors can fill in if necessary, but their time is better spent on other projects. When you are short staffed, you will inevitably end up paying a higher rate for every unit your business produces until you are able to bring the department back up to speed.
Recruitment costs are a little easier to predict and control than vacancy costs. Your advertising fees are straightforward. Fees for background checks are also easy to determine as are the paperwork filing and transaction costs.
The tangible costs of recruitment are:
The opportunity costs of your hiring process are little harder to asses. Consider the time spent and the labor rates you must pay to support staff that perform the following tasks:
The less time you spend searching for a qualified candidate, the lower your employee turnover costs will be in the long run. Try to narrow your focus and streamline your processes as much as possible from the beginning.
It is rare to have a newly hired employee begin work and begin producing results right away. It takes time to adjust to a new environment. It also takes time review company policies, go over new hire company material, and to provide specialized training. Each delay in their assimilation adds to your employee turnover costs.
Training periods vary with the type of work and how specially focused your staffing needs are. For highly technical work, training could take weeks or even months. In more basic jobs, a few hours reviewing expectations and safety protocols is all that is needed. Regardless, you will be expected to pay for the wages of the new employee in training as well as the cost of the training program itself.
Controlling employee turnover costs often require controlling wasteful spending. Small expenses and fees add up over time. The last of the paperwork must be processed, and a final accounting performed. To avoid committing mistakes that lead errors, it helps to have the exit process formalized and reviewed by an HR professional.
An employee that was terminated also presents a potential threat of continued costs. Lawsuits and unemployment insurance payments are common enough that you may need to calculate these into your employee turnover costs as well.
The faster you bring your department back up to speed, the better. In some instances, your profits may ultimately increase, and you could find yourself to be in better position overall. Senior staff members demand a higher pay. Hiring a younger employee that is willing to work for less can actually save you money. Younger staff members are often healthier. They take less sick leave and have lower insurance premiums.
Make sure to calculate your turnover costs before you get into trouble. Being prepared with a plan to replace staff can help to reduce the impact and keep your business profitable. If you are not sure what to do or are having difficulty determining your costs, look through Live Career’s other online resources for more helpful tips.