Hidden Costs Of Employee Turnover

Publication Date :

11 Dec, 2024

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Table Of Contents

What Are Hidden Costs Of Employee Turnover?

Every firm or organization has a product or service to offer customers for sales and revenue. Still, one of the major contributing elements in an active business with daily operations is its employees, who, when they leave, make organizations incur huge costs, both tangible and intangible.

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Before we dive into the costs incurred, let us first understand the concept of employee turnover. Employee turnover is defined as the total number of employees leaving the organization over a specific period of time. It includes both an employee leaving voluntarily and those who are fired or laid off. When the latter is not included, it is called attrition.

No company likes employee turnover, and most business owners expect loyalty and good work from their employees, but again, it's part and parcel of the corporate culture. However, besides the financial impact of turnover, there are multiple other effects and hidden costs that a company incurs when such instances occur. Some such factors that comprise hidden employee turnover costs have been discussed below:

Contributing Factors

#1 - Cultural and Team Morale Implications:

Cultural and team morale implications are the most hidden and intangible employee turnover costs. When employees tend to leave a company, there is a visible tension in the workforce, and it certainly brings a negative shift in the culture and team morale. Employees in different teams share a bonding, and when they see each other leaving, it hurts them, and they start questioning the management and their future in the company. It again reflects on their work and productivity, which starts to decline, and the company bears its cost.

#2 - Diversity, Equity, Inclusion, and Belonging (DEIB) Considerations:

Diversity, equity, inclusion and belonging (DEIB) are core values and emotions that both the company and employees tend to grow over time. DEIB considerations in the long term affect the company and people. In the fast-moving world, it is challenging to grow these values, and it always makes the company create a healthy team and productive workforce once again, which is yet another hidden cost that it incurs for employee turnover.

#3 - Knowledge and Expertise Drain:

Higher performers are 400% more productive than the average staff and are categorized as most likely to leave a company. In 2022, the average of top performers leaving their company was around 47%. The problem is that when a comparatively good and productive employee leaves the company, they take away the knowledge and expertise. Hence, the company has to incur the cost of new hiring, which is never about finding someone but finding the right one. Moreover, there is no guarantee that the new employee will have the same skills, experience, expertise and, more importantly, the right mindset and approach toward work.

#4 - Customer Relationships and Business Impact:

It is a raw nerve for most businesses. When employees work for a company, they create a personal bonding and relationships with customers and clients. These clients are important and have also responded and created a business connection with the employees. Certain customers can only be handled by certain employees. Now when the employee leaves the company, the customer is no longer reacting or replying the same way. When they find out that the person they made connections with has left, they likely withdraw from giving business to the company. This is mostly observed in sales companies.

Strategies to Mitigate Employee Turnover Costs

There are no sure-shot strategies that will work for every company. It depends on the size, industry, department and other employee-related factors that help in employee retention and turnover cost mitigation. A simple trick would always be to have a backup for employees so that work does not get affected, but a few simple tips would be -

Reviewing pay and benefits
Having employee coaching and counseling
Creating a workplace environment where employees can share their feelings
Having good and long hours of discussion with them about their future goals
Offering small monetary and non-monetary rewards
Understanding the importance of DEIB and employee turnover that structures the company’s future
Sharing credit and, if possible, profits with the employees
Making them realize that they are as important as the work itself

How To Reduce Turnover, Retaining Success?

✅ Recruiting right people

Companies should mainly focus on selecting the right candidates who not only fit in the process but also have the right mindset about their career and life goals with long-term vision. In short, people who are elaborate when asked where they see themselves in five years. Their replies tell you a lot.

✅ Recognizing and rewarding employees

This has been the number one reason employees decide to stay or leave and be productive or gradually lower their productivity. Companies need to make their employees feel valued, and the most effective way of doing so is by rewarding them and offering timely appraisals and promotions.

✅ Promoting work-life balance

This term is used like peanuts in today's corporate world, but only a few companies genuinely understand it. Employees have a life outside their cubicles, and they also want to enjoy, have fun and rest sometimes. If, as a company, you can provide this, you can automatically see a positive shift in your workplace morale and productivity.

✅ Creating career paths

Yes, you read that right. Employees have their goals, which companies can help them with by providing opportunities within. Organizations can help employees grow and direct them toward a career path. New roles and responsibilities, sufficient time to grow and promotion to senior positions build their attachment to the company, lowering employee turnover rate.

✅ Learning from past turnovers

HR professionals and the entire human resources department have the data of employees and they can tell how many people left the company in the past year or six months. Using that information, companies can analyze and explore the reasons and problems employees face to work on them and reduce future employee turnover. Learning from past mistakes helps organizations understand their weaknesses and strive for the future.