The Real Cost of High Employee Turnover

The business landscape has changed; with the input of the pandemic, new businesses continuing to launch, and an ever-competitive job market, there is no denying that things aren’t what they used to be. In light of these challenges, staff turnover rates are rising on a national level, concerning business leaders in every industry. For organisations, staff turnover isn't just an HR buzzword; it's a barometer of a company's well-being and a fair prediction for the longevity of a business.

While it is expected that employees have a lifecycle with roles, workplaces and even within their careers, an employee turnover can be detrimental to an organisation, and a particularly concentrated or high staff turnover can reveal a lot about a company. 

This brings us to the question of how to reduce staff turnover, a challenge that is becoming a priority for business owners and HR practitioners.

Typically, high staff turnover rates are actually a symptom of another HR concern that could be impacting culture, opportunities and engagement. High employee turnover rates are often directly linked to how happy employees are at work – another reason it’s critical to conduct employee engagement surveys and poll on feedback regularly. 

The cost of employee turnover cannot be understated, particularly in a competitive marketplace. As HR business partners, when we say the “cost of employee turnover” we’re talking about the impact it has on the wider business, potentially your reputational standing in the market, and also the financial cost to your company. Stay with us, and we will discuss the impact of employee turnover on organisational performance, how to go about calculating staff turnover, and, of course, an HR perspective on how to reduce staff turnover and create a more sustainable company culture and a better workplace experience. 

What is employee turnover?

Employee turnover refers to the percentage of workers who leave a company within a given period. However, employee turnover is more than just a number. Calculating staff turnover is a data-driven approach to understanding how many people are leaving a business and why. There are two types of turnover within a company: voluntary and involuntary. There is a notable difference between the two, which is worth considering when reviewing statistics.

Voluntary turnover: This number represents employees who left your business on their own accord. Some reasons for voluntary employee turnover include accepting a new job, leaving for personal reasons or retiring.

Involuntary turnover: This number, on the other hand, refers to employees who were terminated. This termination could be based on performance, behavioural issues or general reductions in the business.

Why is high staff turnover negative? 

High employment turnover can mean that the business is not functioning as it should be, insofar as it is not meeting the needs of its employees. A dramatic change in the number of people choosing to leave an organisation can also be indicative of something negative in the company - this could be conflict or trouble within employee relations. Alternatively, it could also be a result of external pressures or changes, such as market shifts, competitors offering better employee value propositions that are making your own offering outdated. 

Although this may seem negative, wanting to understand high employee turnover is the first step to identifying problems and resolving issues within the organisation. 

Talent choosing to leave your company has profound implications for your business's bottom line. In the context of staff turnover rates in Australia, a high turnover strains financial resources and can hamper organisational morale.

The dollar cost of employee turnover 

Employee turnover is natural, which is why it is standard to have a talent , recruitment and hiring strategy and budget within any company. This should accommodate talent acquisition for new positions, internal promotions, as well as departing staff. This budget should also factor in the expense of training and onboarding new team members. However, if your employee turnover is high, your recruitment costs are going to match. 

The Society for Human Resource Management estimated in 2016 that the average cost to hire an employee was $4,129, with around 42 days to fill the position. With inflation, the cost of individual employee turnover and replacing team members now sits at around $5000. 

This is actually considered an extremely conservative estimate, with the Australian HR Institute stating that to replace a skilled employee, it can cost approximately 1.5 times the role’s annual salary. For an employee earning $80,000 pa, that is $120,000. This estimate considers the actual cost of staff turnover a little more accurately, and not just the cost of recruitment. It factors in: 

• Dollars spent on talent acquisition - ads, recruitment agencies etc
• Time invested in talent acquisition - HR hours spent in interviews, reviewing CVs etc
• The dollars spent on onboarding & training resources
• The reduced output of the person training or mentoring the new employee 
• The reduced output of the new employee who is unlikely to be ‘up to speed’ for 6 weeks

If you are experiencing a high employee turnover and a new team member only chooses to stay in their role for 6 months, your company will be going through the most expensive stages of this process over and over again. 

These figures alone indicate that the cost of recruiting is far more than the cost of implementing HR retention techniques and that the cost of staff turnover shouldn’t be overlooked.  

The real cost of employee turnover 

Now, we’ve established the monetary cost of high employee turnover. We have also briefly touched on the productivity cost of high turnover, but let’s look at this and the other impacts a little closer. Bear in mind that these factors all have a cyclical relationship with employee turnover and can increase the financial cost of replacing your staff. 

• Employees who have to train new team members work at a reduced capacity. If this is an ongoing requirement that is outside their job description, it could also develop resentment and an overall drop in engagement and job satisfaction. 
• Employees involved in the recruitment process could be required to attend interviews, recruitment days and other ad-hoc events that are likely to be taking them away from their main purpose and the manner in which they add value to the organisation.
• Productivity lost whilst new employees get up to speed. New team members are unlikely to be operating at full capacity for a minimum of 6 weeks. 
• Employees who are dissatisfied or considering leaving the business - or perhaps even have already handed in their resignation - are unlikely to be putting in their best performance at work. This attitude is typical of departing team members, but can breed a lower standard of work and fuel a lower productivity level.
• Staff turnover can make a company feel unstable, it naturally also puts a lot of pressure on continuing team members. High pressure to continue meeting goals is stressful, likely to result in further departures. 
• Employees who feel unsure in their position or workplace, perhaps as a result of a lack of communication explaining employee turnover (especially of key or highly visible members of the organisation), can also begin to create a negative workplace culture. It’s typical to have gossip and chatter following a departure, but when the volume increases, so does the negativity. 
• In any industry, a business has a reputation to its consumers or clients as well as to internal customers within the job market. Another cost of staff turnover is the cost of reputational damage. If a company experiences a notably high percentage of leavers, or employees who do not choose to stay for very long, coupled with the rumours of a negative workplace, could do untold damage to a business’ ability to recruit and retain employees in the future. 

These factors are the real cost of employee turnover to a business. They are perhaps also the bigger costs in the long term. As we’ve stated, there is a natural employee lifecycle. However, when turnover is high and these factors come into play, costs are only going to increase because these have an ongoing knock on effect, rather than a one-off cost, impacting your team’s motivation, overall output, workplace culture and ability to hit business goals.

Without being able to retain your teams, your business is unlikely to hit growth and financial targets, compete in the market and become an employer of choice. At HumanX, we say it all the time: your people are your greatest asset. The workplace experience you provide matters. 

The Current Causes of High Staff Turnover

Current staff turnover rates Australia-wide are high, with 9.5% of the workforce changing jobs in the last financial year. Unemployment also hit a record low in the last 12 months.  

Understanding why someone elects to leave your company is essential for finding appropriate solutions to reduce your staff turnover. With the post-pandemic job market finding its feet, new causes for employee turnover have emerged, as well as age-old classic causes. 

Some common reasons for employee turnover include:

• High stress levels within the workplace
• Low compensation or alluring benefit packages from competitors
• Lack of employee engagement with the work at hand 
• Lack of growth for employees within the business
• Poor management, with little or no feedback or recognition internally
• Long hours or a poor work/life balance 
• A negative work culture, which may include gossiping, emotional harassment or harsh/unfair management

You’ll notice that all of these tie into the cost of employee turnover, too, demonstrating the cyclical relationship we have already highlighted. 

Why You Need to Understand Your Turnover Rate

Knowing and understanding your staff turnover rate allows you to diagnose and remedy issues within your business. Once you understand why your staff turnover rate is high, you will be able to facilitate targeted HR interventions to alleviate the problems at hand. This is where HumanX can help; we offer outsourced HR solutions and HR consulting to help businesses like yours pinpoint areas of improvement.

Calculating staff turnover within your organisation 

To counter high staff turnover rates, precisely calculating staff turnover is a good starting point. By becoming familiar with the steps of calculating staff turnover, you can keep an eye on this number and monitor the success or failure of different HR strategies. Luckily, calculating staff turnover is quite straightforward.

To calculate your business employee turnover rate, you will need to determine the period you will base your calculation around and two key statistics: 

The number of employees who left during your chosen period; and 

the average number of employees during the chosen period. 

From there, it is simple. Your staff turnover rate can be calculated by dividing the number of employees who have left by the average number of employees and multiplying the result by 100 to turn it into a percentage.

It is worth noting that the average or expected staff turnover rate will vary depending on industry and sector. It can actually be better to focus on your retention rate, which as a general rule of thumb should be at least 90%. By consulting experts in the HR industry, you can gain insight into what the norms are for your field and where you sit compared to your competitors. You don’t have to tackle the issue of high employee turnover on your own. Instead, you can partner with HR practitioners like HumanX who work across diverse industry sectors and organisations of various sizes.

Strategies to reduce employee turnover: The HumanX way

With high staff turnover rates Australia-wide, your business has the opportunity to set itself apart with well-thought-out HR strategies to improve employee satisfaction and reduce turnover. However, we also know that it isn’t incurable; we have proven methods addressing how to reduce staff turnover.

One overlooked aspect of the high staff turnover puzzle is the absence of adequate and accessible employee feedback mechanisms. Businesses that regularly gauge employee satisfaction through surveys, pulse checks, one-on-one meetings or informal chats can better understand employee opinions on current company culture. By working with an HR team, you can make appropriate arrangements for collecting this data and make informed decisions based on the results. We can also help you generate better quality responses from your team members, whether in exit interviews or other feedback loops. 

By partnering with HumanX as your trusted outsourced HR team for employee culture and retention, we can help you understand the root cause for employee turnover and walk you through how to reduce staff turnover and turn a new leaf in your company.