The Costs (and Benefits) of Employee Turnover

There Are Positives and Negatives When Some Employees Quit

Turnover is expensive but sometimes turnover is inevitable.
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Smart businesses are concerned about turnover because turnover is expensive. There are several costs that arise when you need to replace an employee. 

High Cost of Employee Turnover

Recruiting costs. These can be high or low, depending on your organization and the level of the position. A grocery store that is constantly recruiting and hiring cashiers doesn't have a huge incremental cost to recruiting one more person.

But if you're looking for a Chief Information Officer - a highly specialized job - you may have to hire a headhunter, and that can cost you around one-third of the final annual salary. That's a big chunk of change.

Plus, all of the time spent reviewing resumes, interviewing candidates, and making the final decision are hours that your employees would otherwise spend working. Recruiting can cost a good deal of money.

Training costs. Some companies have set programs for training that you can easily quantify. This is common in entry level positions. But higher level positions also have training costs, even if these are not formalized.

Just the time spent getting all the computer equipment set up, passwords procured, orientation completed, and the numerous hours of asking and answering questions are all wrapped up in training costs.

Time to get up to speed. In a lot of jobs, we figure it takes you six months to become fully functional.

Each company is different, so even if you have tons of experience as an accountant, you still need to learn all the historical information of your new company before you are completely competent. As a result, you're not as productive in a new job as you would have been in your old job. 

When Turnover Is Good for Your Business

Does this mean that turnover is always bad and you should try to retain your employees no matter what?

No. A certain percentage of voluntary turnover is, in fact, good and can benefit a business.

What kind of turnover is good? The quick answer to this question is: if the new person can bring enough added value to outweigh the costs of recruiting, training, and getting up to speed then the former employee leaving is a good thing. 

Here are examples of when turnover is good for your business.

Bad employees. Let's face it; not all employee problems are caused by management. There are some bad employees out there. Have you ever worked with a complete slacker? What about someone who loved to steal credit and slander her coworkers whenever possible?

What about a gossip who couldn't keep his mouth shut? When one of these people quits, the heavens should be rejoicing. This voluntary termination has just saved the company the hassle of implementing a performance improvement plan, providing coaching, and doing damage control for all the problems the bad employee caused.

Additionally, you have the truly bad employees - the ones who steal, sexually harass, are completely unreliable, or use foul language in the presence of customers. These people have to go, so it's cheaper and easier if the person resigns than if you have to go through your company's termination procedures.

(Even though all states except Montana are at-will states and you can fire people legally with no documentation, in practice, almost all companies follow specific, progressive discipline programs.)

Miserable employees. Sometimes you have an employee who does a good job, so you can't fault that, but he seems miserable. It's not that he's underpaid or overworked, it's just that he isn't happy in this job.

When you're happy in your job, you'll not only do better work but influence others positively as well. Conversely, one bad apple really can spoil the barrel. When someone is miserable, it's a great thing for that person to move on.

People with no good ideas. When you are hired for a job, you often come in with great new ideas. However, if you don't work really hard at it, it's easy to slip into the "we've always done it this way" mode.

This can mean a company can lack innovation.

It doesn't have to be this way. Some people change and grow with the position, always coming up with the best practices and creative ways to solve problems. But some people don't.

Your business can stagnate if you don't have any new ideas. Sometimes it's nice when someone quits so that you can bring on someone with new, fresh ideas.

Don't Panic When an Employee Quits

Having an employee resign can sometimes feel like a punch to the gut. Sometimes, it is really bad for your business. You'll suffer not only in turnover costs but in the lost potential that your former employee had.

It's always worth some self-reflection to figure out if you could have done anything differently. For instance, a voluntary quit is a reminder to double-check that your salaries are at market rate and ensure your policies and practices encourage a great workforce. But it's also a time to evaluate if the quit is a blessing in disguise.

Find more information about the causes and prevention of employee turnover including 18 ways you can reduce turnover in your organization.