Employee Turnover: Costs, Problems, Solutions

Recruitment can seem like a long, time consuming and frustrating process. When you have found someone that seems like the right fit, it is easy to skip over important recruitment steps. At the time they can seem unnecessary because you “love the candidate” and “are definitely not worried about what their references have to say”. The problem comes after the honeymoon phase of hiring is over. The candidate is through their probationary period and you are really looking for them to shine as much as they told you they were going to. This is when things can start to decline, fast.

If employee engagement is declining, you may have to let that employee go. This is where it gets rough, because for most small businesses, losing one person can have quite an impact on the team. You are going to want to fill that person’s role as soon as you can to make sure that you can keep up with all your current work and the work coming down the pipeline. This means that when you are thinking about recruitment, your recruitment process and the overall satisfaction of your employees. You should keep in mind what the cost and effect of employee turnover is within your organization. Because, yes, employee turnover can be a problem for your business.


What is employee turnover?

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Employee turnover is the number of employees in a time period, who leave your organization for various reasons. Employee turnover is important for an organization to know. It is helpful in calculating the cost of recruitment and forecasting your recruitment needs for the year. For example, if you are a restaurant whose employee turnover has been 12 people per year for the past 3 years, you know that you are going to have to hire at least 1 person per month in order to keep the staff at the level you are currently sitting at. Depending on the amount of time it generally takes you to fill a role, you can then figure out when you need to start recruiting for that position.

The outcome of turnover on your company

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Turnover within an organization isn’t all bad. As easy as it is to point out the negatives, there are also some positives to turnover. But let’s start by talking about the negatives. Employee turnover is costly! If you think about the lifetime of an employee the cost points look a little something like this:

employee turnover employee retention 1

Employee turnover – external view

While recruiting, you need to be aware of what your turnover looks like to someone who is wanting to apply at your company. Externally, those who see constant turnover in your staff or your job ad up online frequently start to question why you are always hiring. They are more often than not going to associate high turnover with how your staff is treated and could be put off from applying.

Employee turnover – effect on your culture

The effect of turnover on your company culture is a catch twenty-two. Because, if your turnover is too high they feel as though their position is at risk which can cause employees engagement to decline. But on the other hand, if you wait too long or keep on employees who should be let go, it can have a negative effect on the culture. The rule of thumb is to hire slow and fire fast.

How to calculate employee turnover?

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Putting an actual dollar value to employee turnover is tough as it varies from position to position and company to company. We found a great site which helps calculate the approximate cost of employee turnover. This exercise is good to do when you are doing your Human Resources strategy planning for the year. This would help when you are doing or updating your policies. It can help you with making decisions on the number of vacation days, bonuses and other cash and non-cash incentives which can help with employee satisfaction and retention.

Follow your recruitment process!

The last point around employee turnover that we want to outline is that no matter how long your recruitment process is, follow it! The more you recruit for a role, the more you learn about what to watch out for or what extra steps you need to include to be successful. As long as you are keeping the candidate engaged throughout the process, take your time so that you are making the right choice. If you are new to recruiting, check out our tips & tricks! Or give us a call, we would love to help you with your HR needs as Entreflow offers one of the best business HR services available in Canada.

Helina Patience, CPA, CMA
Author: Helina Patience, Founder, CPA, CMA, BA (Hons), BEd

Helina is a CPA, CMA with over fifteen years of experience in finance & HR within multinational companies, across many industries. Also the CEO of entreflow consulting group where I help small to medium-sized businesses get organized, grow, and crush their goals. I hold vast global experience after living and working in Australia, India, the UK and Ireland. Connect on LinkedIn.

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