The pain when an employee submits their resignation is one too many businesses inevitably experience. No matter the size of the organisation, employees will come and go. The loss of a top-performing staff member is critical to many teams, as is the departure of an unreplicable knowledge human library. The cost of an employee leaving is probably a lot larger than what many managers would initially believe to be true.
There are direct costs, such as payout entitlements and recruitment fees for their replacement. Many indirect costs are harder to measure but indeed add up to be significant. Obviously, minimising employee turnover is ideal, but if you truly understand the costs involved, you’ll place a higher priority on ensuring your valued employees are given every reason to stay!
How to calculate direct employee turnover costs
For most roles, there is a significant hassle when it comes to finding new employees to fill their position. The exiting staff member must have all their entitlements (including leave and superannuation) paid out, equipment returned and recalibrated, as well as any taxes outstanding covered. On-costs of the recruitment process include fees paid to recruitment agencies and services used to check references and complete medicals.
Temporary staff and agency fees add up fast while a permanent replacement is found. According to research, it costs around $18,982 on average to hire one employee in Australia, and it scales depending on the seniority of the position. That’s a lot of money to be paid every time someone decides to leave. It’s also just a portion of the bigger picture.
Indirect employee turnover costs you need to consider
There are also a multitude of expenses you will incur that aren’t so obvious. The intellectual property of a lost employee is hard to value, as are their systems and processes that may need to be replicated. Here are four factors most employers need to consider:
- Time spent by internal HR teams. In addition to spending money on external consultants, recruiters and job advertising, HR teams also have to put in work. Time spent recruiting and screening employees is time redirected from another task they could be working on.
- Training a new employee. It can cost a lot to train a new employee. You need to consider the remuneration of trainers as well as the time and other resources committed to getting the new hire up to speed.
- Loss of productivity from fill-ins. When there is a vacant position, other staff have to take on parts of the role, covering their functions within the organisation. Instead of doing their own job, they are reallocating their time and effort.
- Loss of productivity at handover. In the lead up to an employee leaving, they are probably less productive or focussed on the role. This is also true for the new employee, who will often take a month or more to be as productive as who they are replacing.
After all is said and done, the cost of an employee leaving may very well add up to an amount approaching their yearly salary. When many employees leave every year, even a reduction in turnover of a few percent is enough to make a significant difference to your business’s productivity and bottom line.
A simple way to reduce employee turnover
In Australia, approximately 8% of staff change employers each year, with sectors such as hospitality and administration experiencing four times this rate due to COVID and the shortage of staff. Furthermore, recent studies reported that 44% of Australian employees were planning to look for a new job over the next twelve months. This study has recently been updated to 50%. These are alarming statistics that, when weighed up against the costs, clearly drive home how important it is for employers to spend money and apply resources and other employee-benefit-based solutions to minimise turnover.
Paytime is one such solution that allows employees to access their earned wages before their next payday via a simple app. It addresses the need for employees to have increasingly flexible access to their earned wages to help manage their personal finances. When an unexpected bill arrives, instead of stressing and having to turn to credit cards, bank overdrafts or accessing a dangerous payday loan, they can rather access a portion of their earned wages to cover any shortfall.
For more information about how Paytime can help your employees manage their personal finances, increase their job productivity and minimise their chances of leaving their role, contact Paytime today.