The high cost of employee turnover


Employee turnover is an inevitable reality of doing business in Whistler. We all know it adversely affects the bottom line but by exactly how much can be somewhat ambiguous. Employee turnover costs are often hidden, in that the resulting impact can’t specifically be seen on a financial statement.

Nonetheless, it is significant enough to be referred to as the ‘silent but substantial profit killer’. These three companies – Integrated Organizational Development, Hudson Institute and Walker Information – partnered to develop a comprehensive worksheet to calculate turnover costs.

This column offers a summary of that worksheet but should you want a copy of the detailed form, visit Lighthouse’s Facebook page and I’ll post it along with this column.

Their formula takes how many exiting employees your company has and suggests multiplying it against hard and soft costs for a bottom line cost of turnover to your business.

Hard costs take into consideration the classification and hourly pay rate of an employee, as well as pay rates for other staff and supervisors that will be involved in any aspect of the process. This could encompass covering the workload of the missing employee or having specific involvement in the recruitment process. Hard costs can include administrative time spent on the separation process, coworker burdens, time spent on and costs for recruitment, interviewing and reference checking. Hard costs are also incurred during orientation and on-the-job training. Simply put, it is taking the hours spent on each of these areas and multiplying it by the relevant wage for total hard costs incurred from employee turnover.

Soft costs are more difficult to estimate but the same formula of hours spent at a specific wage is used. Generally, soft costs cover lost productivity at all stages including pre-departure, during vacancy and selection and sign on of new employees. An example of pre-departure soft costs would be lost productivity of the exiting employee, as well as lost productivity of the supervisor and coworkers due to increased workloads and increased time spent adjusting to a changed work environment.

Employee turnover has been estimated as high as 150 percent of annual salary although that would be much less for lower level positions. Even so, it is significant enough that companies should have a clear understanding of how much it costs their business and implement processes to soften that blow as much as possible.

As Principal of Lighthouse Visionary Strategies, Cathy Goddard offers business coaching and consulting, workshops and the Open Forum speaker series. She is the founder of Lighthouse’s Mentor Network, providing mentor groups to local professionals and for the second year in a row, is nominated for a Small Business BC Award in recognition of the impact this program has on the Whistler community. Please visit Lighthouse’s website at www.lighthousevisionary.com to cast your vote. Cathy can be reached at info@lighthousevisionary.com

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