In EPIC Adventures’ work with our corporate clients, we find that, even though employee turnover is such an obvious and serious issue, there are many business owners who still underestimate the financial ramifications of constantly losing and then having to replace employees.

The general perception seems to be that you’re only losing money while you’re short-handed and looking for a replacement. So if you find and hire someone new in a week, you’ve only really lost a week’s wage in productivity, right?  Wrong. There’s so much more that goes into the entire process – many hidden or not-so-hidden expenses that many business owners and managers tend to overlook. There are many so-called “soft costs” that management tends to overlook.

Want the real scoop on why poor employee retention is costing your business so much? Here are just some of the costs that add up as you try to replace team members.

Hiring Costs

You think that you’re simply losing money on a lack of productivity while you’re looking to fill your vacancies? What about all of the money and time that goes into finding the right employee? Hiring someone new is not an event, it’s a process.

Recruiting Costs

  • Fees paid to outside recruiters
  • Advertising costs if you have to place an ad for a specific position or even for the company itself when recruiting for several positions
  • Writing an effective job advertisement takes time and resources
  • Screening of potential candidates

Interview costs

  • Travel costs to candidates to visit the company for interviews
  • Travel costs for your staff to go to a recruiting fair to source candidates
  • Time for your Human Resources (HR) staff and hiring department staff to interview candidates
  • Post interview costs
  • Time to check references and credentials from candidates who pass the screenings
  • Pre-employment skills testing you may need or want to administer
  • Pre-employment screenings for drugs, etc.
  • Employment costs
  • Signing bonuses, if paid
  • Relocation expenses for the prospective employee and their family

Onboarding Costs

Once you’ve found the right person, you’re going to have to onboard and train them. Quality onboarding is imperative in your fight against employee turnover. The better your process is, the better your chances are of getting your employees quickly up to speed and keeping them engaged as time goes by.

Training can cost a heck of a lot of money as well. According to a 2014 report published by Training Magazine, the average training budgets of small businesses was $308,000, with retail and wholesale businesses spending more than $500,000 on training annually. The report claims that it costs approximately $1,200 to train one employee.

And of course, there is the time spent on processing the new employee, Accounting will need to get them onto the payroll. IT will need to issue computer equipment and get them into the email system, set up their username and password, etc.

Training Costs

After you have incurred all the hiring costs discussed above, you have additional costs to get the new employee trained. Even when you hire highly qualified, very experienced new employees there are always training costs. If nothing else, they have to be trained in the way your company does things. And these training costs continue to add up until the employee is trained to the same level of productivity for the former employee they replaced.

Training costs include:

  • Time for people to train them. This would include training them in the company’s practices as well as the duties of their individual job.
  • Training materials. These will have to be prepared or, if they exist, reviewed and updated
  • Benefit enrollment. HR has to explain the benefits to the new employees and give them the enrollment forms to fill out or help them fill them out.

Learning Curve Losses

Even when your new employee is all caught up on training and has successfully been onboarded, there’s still a learning curve. The process of learning on the job doesn’t end once the first shift has been created for that employee.

No matter how successful the training was and how good your new employee is at doing his or her job, there are going to be problems and mistakes that will occur while they are getting acclimated to their new role.

There’s probably going to be customer service problems and there’s a good chance that some of your more experienced employees are going to have to pick up the slack a bit while your new hire finds his or her feet.

Productivity Nosedives

Poor employee retention not only affects the productivity levels of the specific position in question, it’s going to affect your entire team. High employee turnover rates can have crippling consequences for your workplace culture as a whole.

When people are constantly leaving your company, the people who are staying are prone to be concerned about it. They might be asking why it is that so many people are leaving and even considering doing the same if the trend continues.

High turnover also makes the concept of teamwork virtually impossible. How can you learn how to work as a team when your team members are in constant flux? If your business struggles to retain its best employees, there’s a good chance that morale is pretty low all around. Having a revolving door situation at any position in your company makes it incredibly difficult to build familiarity, relationships and a positive company culture – all things that are crucial for employee retention.

As friends and co-workers continue to leave, your remaining employees can struggle to form new relationships at work, or simply be hesitant about it. Low morale leads to a lack of motivation and low productivity. That’s why it’s so important to build a positive and supportive company culture. Team building events, such as those offered by EPIC Adventures, are a great way to engage your team, build cohesion and synergy and develop teamwork while also creating a positive culture within the workplace.

Opportunity Costs

Opportunity costs are the costs of opportunities you couldn’t take advantage of - the cost of business lost because you didn’t have the people resources to do all the work while you were shorthanded. This might mean incoming calls not answered before the caller hung up, sales calls not placed to prospective customers, or trade show appearances canceled because no one was available. These costs can be hard to measure, but they are real.

Morale Costs

And finally, don’t overlook the cost of reduced morale from other workers having to cover the workload of the employee left from the time the employee starts slowing down because they know they are leaving until the time the replacement is hired, trained, and up to speed.  Frequent voluntary turnover has a negative impact on employee morale and productivity which, in turn, impacts company revenue.

The real cost of employee turnover

Some studies predict that every time a business replaces a salaried employee, it costs 6 to 9 months’ salary on average. For a manager making $40,000 a year, that’s $20,000 to $30,000 in recruiting and training expenses.  Employee Benefit News (EBN) reports that it costs employers 33% of a worker’s annual salary to hire a replacement if that worker leaves. In dollar figures, the replacement cost is $15,000 per person for an employee earning a median salary of $45,000 a year, according to the Work Institute’s 2017 Retention Report.  But others predict the cost is even more—that losing a salaried employee can cost as much as twice their annual salary, especially for a high-earner or executive-level employee.

A CAP study found average costs to replace an employee are:

  • 16 percent of annual salary for high-turnover, low-paying jobs (earning under $30,000 a year). For example, the cost to replace a $10/hour retail employee would be $3,328.
  • 20 percent of annual salary for midrange positions (earning $30,000 to $50,000 a year). For example, the cost to replace a $40k manager would be $8,000.
  • Up to 213 percent of annual salary for highly educated executive positions. For example, the cost to replace a $100k CEO is $213,000.
So, what can business leaders/owners do to mitigate the cost of losing an employee?  For all the reasons listed above, an investment in team building is effectively an investment into the overall functioning of the company/organization and has a substantial impact on your bottom line and the success of the venture.  If you’re interested in learning more about team building and how it can impact your business/organization, call us at 1-855-5BE-EPIC to book a date for your team building event. 


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