Employee Turnover Is a More Costly Problem than Researchers Thought, Here’s Why

A high employee turnover rate can set a business back. But new research shows just how much employee turnover costs.

Researchers have been studying employee turnover—the causes of it, and how to prevent it—since the 1900s. 

Unsurprisingly, there are countless reasons why employees quit or leave their jobs: better pay elsewhere, relocation, family emergencies, changes in career, hating a boss or work culture, and the list goes on. 

Trying to unpack the full motivations for quitting can be daunting and cryptic. 

But our researchers believed looking at the other side of the employee turnover equation— the ways in which employers are impacted by employees who quit—could be more easily understood. 

In addition, much research includes examinations of enterprise-level companies. We wanted to narrow the scope of this research to only the small business economy, the businesses that make up 99.9% of our nation’s employer base. 

Our goal was to look at modern trends and impact regarding employee turnover in small companies.

Methodology

Zenefits surveyed more than 600 US-based small businesses, with between 50 and 500 employees in June 2019. Small business is defined as 500 and fewer employees by the federal government. Participants stemmed from 47 states and more than 40 industries. Survey respondents were owners, founders, C-level executives, or HR administrators at their companies. Surveys were excluded if they were partially complete. 

Background

At the time of this survey, US national unemployment rates were at a 10 year low, hovering around 3.5-4%. Small businesses made up 99.9% of the nation’s employers, and 47.5% of the nation’s employees. 

1. Retaining employees is harder than hiring them. 

employee-retention

When we look at typical employment data and assess the strength of our economy, we often look at unemployment rates and job growth. But perhaps employee retention rates is another key indicator. 

According to our research 63.3% of business owners say retaining employees is harder than hiring them in the first place, and 68.3% experienced turnover in the last 12 months, and 1 in 3 business leaders say they expect employees to stay for less than one year. This means, while unemployment is low, it could simply mean that more people are moving between jobs, quickly bouncing from here to there, and leaving employers with gaps in staff and extra work in hiring and onboarding.

2. Turnover is a “costly problem.”

turnover-rate

81% of businesses say turnover is a costly problem, but it’s not just in the costs of re-hiring that they mean. Asking them what in particular is impacted by employee turnover, business gave these top reasons: 

employee-turnover-costs

Biggest costs of turnover to businesses of 50-500 employees

  • Delays to customer projects and/or services (24.5%)
  • Loss of productivity (21.1%)
  • Cost of re-hiring and onboarding a replacement (17.2%)
  • Hurting team and/or company morale (15.6%)
  • Stress it creates on immidiate team (10.6%)
  • Legal and/or HR issues and ramification (9.1%)
  • Other (1.8%)

3. Turnover kills business growth.

turnover-and-growth

At first glance this finding may seem obvious, growth is impacted when you lose staff. 

But running a business isn’t so black and white. 

Often, businesses need to increase their staff in order to grow their client base and revenue potential. An increase in employees allows for an increase in overall work output. So while losing employees could feasibly save a business money in the short term (but please remember you need to calculate out the costs of potential litigation, unemployment taxes, and then hiring and onboarding) your business overall stands to shrink. 

4. When your employees quit, your customers suffer.

employee-turnover-costs

Who suffers the most when you lose a staff member? Your customers. 

Businesses, and especially small businesses, suffer when they lose even one employee. The amount of work is delicately balanced between the number of employees and revenue potential. Many businesses hold off as long as they can even hiring employees, favoring instead independent contractors and project based contracts because of the fine line between too much overhead cost and servicing customers well. 

5. Companies can better prepare for turnover

Maybe there’s something business leaders can do to prevent the revolving door of staff. 

Already, 67.8% of business leaders say they notice before an employee is about to leave, noticing performance decline (60.5%), unusual office behavior (47.6%), absenteeism (50.6%), or tardiness (47.6%). Only 7.5% of business leaders say they recognize nothing. 

If companies can consider retention strategies up front, and develop work cultures that foster employees’ needs, they may stand to have longer term staff, and less money siphoned away for backfilling staffing costs. 

From basic needs like appreciation, to perks that attract your ideal worker, companies could stand to gain if they invested a little more effort into retention tactics. 

“When people feel under-appreciated they leave the company,” says Gwen Jimmere CEO of a successful hair product company called Naturalicious. “It’s in the business owner’s best interest to train well, hire well, and foster an environment where people want to stay to create the lowest turnover possible.”

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