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We live in an era where quality talent comes at a premium — and losing that talent is even more expensive. The average US company bleeds hundreds of thousands and even millions of dollars each year due to turnover and its associated costs. To put it another way, U.S. companies lose a collective $1 trillion annually.
For every person you lose, think about all the time, money, effort and emotional energy you spent to find, train, onboard, engage and offboard that person. Now double it because you are about to do it all over again. Turning over employees creates double the work, double the effort, double the hard costs and huge losses in productivity. Not to mention the damage it does to your company culture. The stress and burnout created by losing a single employee let alone dozens is felt by everyone in the organization is almost impossible to calculate in dollars but its huge number.
Let that sink in for a minute.
There are a number of reasons why companies experience turnover and attrition that we will address in this article but ultimately it all starts with your recruiting and hiring process. Your business Mission and core values are your guiding light, it's your “Why”. Your core values dictate company culture and “How” you execute on your Mission. Aligning your hiring process with these is step one, then reinforcing your mission and core values through your onboarding program, ongoing training and performance management programs is how the most profitable companies go from 60% turnover to to below 20%.
Then you might be asking yourself is it worth spending time, money and energy into lowering our attrition rates? Picture what would happen if lowered those rates by 37%? Would your culture improve? Would burnout and overtime costs go down? Would your reliance on third party staffing companies decrease? Would your leadership team achieve their goals faster and easier? Would revenue and profits rise?
Let’s explore the costs, causes and how to solve your company's turnover problem.
Let’s break it down.
High Employee Turnover Matters, Folks
It’s easy to ring the alarm about turnover and talk about big “trillion-dollar numbers” in a general sense. But if you really want to understand the real cost that turnover is having on a business, it’s worth looking a little closer at the numbers.
Let’s start off by taking a brief look at the current rate of turnover on an industry-by-industry level.
Turnover in Healthcare
The healthcare world has always struggled with turnover on some level or another. Since the pandemic started, though, it’s become one of the hotbeds of employee unrest.
The worst areas where staff is quitting in droves are, not surprisingly, in the trenches. Nurses have been leaving their positions, especially in hospitals, at alarming rates. According to a 2022 NSI National Health Care Retention & RN Staffing Report, hospitals lose a staggering 95.7% of their RN workforce every five years.
That means every few years, your staff is almost completely made up of new workers. Yikes…
In mid-2021, McKinsey reported that, along with ongoing nursing staff woes, 60% of private sector hospital leaders also claimed clinical hospital support staff coverage was suffering. Senior living is another area of healthcare that is struggling with turnover. In 2021 the average turnover rate was at 48.51% amongst all management and non-management positions. While some turnover is approaching pre-pandemic levels, the recovery has been slow and uneven.
Turnover in Construction
The A/E/C (architect, engineering, and construction) industry has made the headlines for a while now as another area of the economy struggling to keep employees on the books. The U.S. Bureau of Labor Statistics (BLS) reports that, while lower than in recent years, the annual total separation rate (read: average annual turnover rate) in the construction industry was 56.9% in 2021.
A/E/C companies came under unique pressure during the pandemic — pressure that saw 14.5% of the construction workforce evaporate in the early months of 2020. If you’re thinking, “well, that had to do with a specific crisis,” you’re not wrong. But this only exacerbated an alarming turnover trend that was already sweeping through the sector.
Construction companies are grappling with chronic employment concerns across the board. A lack of younger professionals is driving a generational crisis that could be seen when the Associated Builders and Contractors (ABC) reported in early 2022 that the industry was facing a workforce shortage of 650,000 employees in addition to the normal pace of hiring.
Rubbing salt in the wound is the fact that the average age of construction workers is rapidly rising. In addition, the U.S. Chamber of Commerce has shared figures showing that 55% of those in commercial construction reported a “high level of difficulty” finding workers who were highly skilled.
Turnover in Manufacturing
The turnover battle extends to manufacturing, too. The BLS provided numbers on the sorry state of employee affairs in the manufacturing industry, and they’re not pretty. In 2021, 39.9% of manufacturing employees separated from their companies across both the durable and non-durable goods sectors.
Again the skilled labor to operate increasingly complex processes and machinery is evaporating creating a substantial shortage in the new skilled workforce required to keep manufacturing facilities humming at full production.
Turnover in Logistics and Warehousing
Logistics, and warehousing have seen more than their fair share of turnover. The BLS pegged the “transportation, warehousing, and utilities” turnover rate at just under half (49%) in 2021. To get an idea of more current conditions, BLS also put the monthly separation rate number for November 2022 at 5.4% as compared to 4.0% in November of the previous year.
Zooming in a bit, truck drivers, in particular, continue to struggle profoundly with sky-high turnover rates. In 2019, the American Trucking Associations reported employee turnover rates for larger fleets at 89%. That was before the pandemic, and while the rate has vacillated since then, it remains very high.
Turnover in Accommodations, and Food Service
The accommodation and food service industries (which BLS counted together) also saw a massive employee turnover percentage in 2021, collectively adding up to 86.3%. Monthly numbers comparing that year to 2022 show a slight drop from one November to the next. Even so, they remain elevated at a 6.7% monthly rate (the highest rate on the entire BLS report).
Why Does Employee Turnover Matter?
The excessive cost of employee turnover is a profit crushing avalanche for many businesses behind in solving the problem. As employees steadily depart and are replaced, it raises the question: How much does employee turnover matter?
A more positive way to phrase the question could be: If we hire the right people and reduce employee turnover over time, what would happen?
It’s a fair question. And when you break it down, each situation is so different that it’s hard to be overly formulaic.
Instead, let’s consider a hypothetical.
Edie Goldberg, founder of the talent management and development company E.L. Goldberg & Associates, puts the cost per hire as high as three to four times a position’s salary. Gallup suggests a more modest 1.5 to two times the salary. Averaging them out, we get 2.625.
The BLS estimates the annual mean wage to be $58,260. In addition, the agency puts the most recent annual average turnover rate at 47.2%.
Let’s put it together, shall we?
At the average turnover rate, a 50-person organization would lose 23.6 employees each year. Multiplying that by the annual mean wage compounded by 2.625 times that wage gives us:
We’re talking about a serious chunk of change here. The thought that a 50-person company could spend over $3.6 million on turnover every year is, quite frankly, appalling.
On the flip side, if that same company could reduce their turnover by 37%, they would save a grand total of:
It’s a huge number and, and an average savings that is absolutely possible to generate — especially when you have the right system in place to hire the best employees for each position.
How to Figure Out Your Cost of Turnover
The E.L. Goldbert & Associates’s turnover estimate is based on a mixture of direct and indirect costs — also called “soft” and “hard” costs.
This is an astronomical figure …based on The Hire Talent’s decades of experience helping companies hire high-value talent, it’s an accurate one, too.
Understanding your cost of losing an employee is an important number to know as you plan your business budget for recruiting, and hiring. It will make measuring ROI on your efforts to lower attrition easier as you make investments in solving the problem.
One of the reasons many business leaders simply throw their hands in the air when facing turnover problems is because they don’t have a strong grip on the costs associated with the problem. We all know the costs are there and are high but when we don’t have a way to track and quantify improvements or declines it becomes this frustrating abyss.
Breaking Down Hard and Soft Hiring Costs
Hard costs are simple enough. They’re the predictable and direct expenses that come with hiring, such as the time involved, paying to post a job advert, or the need to purchase a new uniform. There are also hard costs that can come as a result of losing too many employees, like a rise in worker’s comp claims in both quantity and size of each claim.
SHRM puts the hard costs of hiring at 30-40% of the overall financial cost of employee turnover. For a front-line worker making $50,000 per year, that’s $15,000 per hire on the lower end.
Here a list of some of the Hard costs you might want to add up:
- Job ads
- Recruiter fees
- Interviewers time
- Onboarding costs
- New hire Training
- Equipment
- Software
- Uniforms
Typical costs $4,000 to $10,000 is what I would peg for these numbers
Most other employee turnover costs fall under the category of indirect soft expenses. These include a smorgasbord of items, some of which are easy to identify. Others can discreetly drain your bottom line without your even noticing. For instance, SHRM cited soft costs like:
- Culture killer
- Safety Culture show stopper
- Poor employee retention leads to lost productivity.
- Unhappy customers resulting in lost sales revenue
- Employee turnover lowers team morale.
- Burnout of your best people
- Losing potential talent to competitors.
- Turnover turns into EEOC and Work Comp claims, increased chances these are litigated claims just ask your insurance company they will gladly share the data with you to get you to stop turning people over
SHRM doesn’t even touch on other indirect costs, like training costs, career development opportunities, and poor performance. These soft costs factor into the impact that poor turnover has on a company — which is why eliminating even a third of these costs on average can save your company so much money.
The question that remains is how to reduce turnover in the first place.
Basic equations for calculating Turnover costs:
[COST of HIRING] + [Productivity Loss / Gain] = Your Cost of Turnover
- Costs of Hiring
- Job ads
- Recruiter fees
- Interviewers time
- Onboarding costs
- Training
- Equipment
- Software
- Uniforms
Typical costs $4,000 to $10,000
Productivity Loss
- Days position left unfilled X production value of full capacity employee
- Days to ramp to full production X production value of full capacity employee X percentage of capacity and new person can produce + Trainers costs per hour of training X value of lost productivity of trainer
- Burnout of full production staff = More turnover + [COST of HIRING] + [Productivity Loss / Gain]
- Damage to employer brand= More turnover + [COST of HIRING] + [Productivity Loss / Gain]
- Damage to company culture= More turnover + [COST of HIRING] + [Productivity Loss / Gain]
- Damage to morale= More turnover + [COST of HIRING] + [Productivity Loss / Gain]
- Lost customers = Average annual value of a client X # Lost
- Lost sales production = Salesperson quota - minus actual results
Facing the Reality
The numbers don’t lie. If your company is worse than your industry average it’s time to take action and course correct the ship because it’s costing you an arm and a leg. All the “Year end” polls on linkedin surveying over workers asking them if they plan to move jobs in 2023 come back with shockingly identical results with 10’s of thousands of respondents. The conclusion is:
- 56% of your workforce WILL be looking for employment outside of your organization in 2023
- 25% of your workforce would seriously consider another opportunity if it was clearly superior to what you are offering
- 18% of respondents were stoked to be working for your organization!
Companies have the opportunity to be the winner or the loser of the labor market sentiment at this moment in time.
Be the “Winner” by becoming the employer of choice. That begins with not hiring losers and hiring winners who reinforce your company culture, values and consistently achieve its mission. Watch the profits roll in.
Be the “Loser” in this equation by not putting your people first, your culture in front and by lagging behind in competitive factors like compensation, benefits, and work flexibility. Catching up is a process and a commitment it is painful. Imagine not exercising for a year then running 5 miles a day. Going from 0 to hero is not a sustainable plan, in fact 98% of people who take on goals too big for them fail. Start addressing the factors driving loses now.
To make matters worse we are at the lowest unemployment rate in 70+ years, wages are rising and the shrinking labor pool due to sluggish population growth are going to make this a long term problem for businesses. Even with modest job gains the labor market will remain tight for a long time to come unless there is a major recession or another pandemic! The slight recession we are experiencing is likely to be muted by this tight labor market and shortage of potential workers.
What is the solution?
A keen focus on becoming the employer of choice.
How do you do that?
By first understanding what causes turnover and attrition then we will discuss some actionable steps you can take to resolve those problems.
What Causes High Turnover?
Reducing employee turnover starts with understanding why the problem is occurring in the first place. What issues lie at the root of the issue? What is driving so many employees to leave you? What are they getting elsewhere that you aren’t providing?
Why is being a “competitive” employment opportunity just a code word for: We are doing what everyone else is doing? Especially since everyone else is getting crushed by turnover, too.
The very best organizations aren’t suffering from employee turnover are aware of what drives worker away — and they are tackling the problem head-on:
Poor Hiring Practices
Hiring the right candidates is both a science and an art form.
When companies short-change this process, they invite mistakes. A hasty or imprecise hiring process can put pressure on HR and increase the real cost of turnover down the road.
Often companies set themselves up for failure by simply not have a strong process in place and often skip the very first most foundation steps
- Lack a repeatable process and structure for finding and evaluating talent
- Skip the foundational steps like creating SMART job descriptions
- Lack the right tools to make executing the process easy, repeatable and measurable
Failing to master the Art of hiring is a more complex problem but it can be solved by taking some intentional steps
- Create a simple structured interview process.
- Practice executing your interview scripts and processes to help HR, Recruiting, Front line managers and Executives master the nuance required to become expert interviews.
- Use assessment tools to check interviewer gut feelings and make them less bias and objective in how they evaluate candidates.
- Leverage Candidate Scorecards to create accountability with interviewers to stay focused on assessing candidates on what matters the most.
- Speak with candidates previous direct supervisors as references like your life depends on it. If this feels like too much effort try automating it
Hire for Integrity and Attitude can make the biggest impact of all. In a massive recent study with over 550,000 data points a simple 8 minute Integrity Survey given to job candidates in healthcare, construction, logistics, food service, hospitality and other frontline industries reduced turnover by 37% On average
Unhealthy Workplace Culture
Workplace culture isn’t just a cool exterior vibe that’s good for PR and impresses customers. Inclusivity consultant, behavioral scientist, and TEDx speaker Dr. Pragya Agarwal defines workplace culture as “the shared values, belief systems, attitudes and the set of assumptions that people in a workplace share.”
Agarwal adds that things like cultural context and individual upbringing play a key role in culture. In the workplace, though, it’s things like leadership and management influence that dictate the company culture more than anything else.
In other words, leaders help define the company culture for their employees. If they make the wrong hires or make their office an unwelcoming or, in some cases, a straight-up hellish environment, it’s going to turn off talent.
Company culture is directly tied to the attitudes of the people within them. If your company culture is filled with problem generators and talent terrors then your company's culture may become toxic instead of being nourishing. Again, this connects back to making sure you’re bringing on new employees who will embrace and add to a positive company culture for your organization.
Employee Satisfaction
Employee satisfaction is another issue that can directly impact turnover rates. When workers feel ignored, uncared for, or undervalued, it can undermine employee morale and loyalty to their employer.
What are the drivers of employee dissatisfaction?
- Cash Compensation. Period. Cost of living, inflation, and general quality of life is every human being's top priority. If your compensation is just average then that's like getting a C- on your algebra test and not something that employees are going to feel great about. They will be having financial stress working for your company.
- Healthcare. Employees are people, real live human beings, not pets. Just like you and I we all need health insurance and if you are making the national average income of $58,000 paying for health insurance out of pocket is not sustainable as it likely costs $5,000- $15,000 annually which is a huge pay cut. There are fantastic low cost employer sponsored options and with ACA you can set up programs to help get your lower income employees enrolled in programs that can cost as little as $10 per month. Just by simply helping them enroll you might find you have a raving fan instead of a negative review on your Glassdoor page!
- Culture is huge. Fostering a culture of personal and professional growth with a servant leadership perspective can go a long way to improving Employer Net Promoter (eNPS) scores. Safety being a key component of your company culture goes a long way to showing your team leadership cares about the well being of their employees. It supports a general culture of Integrity, Quality, Service and Success.
- Will fill or empty the talent pool. Companies with high employee satisfaction are a gold mine of talent referrals. I was talking to Diane, a Risk Consultant for Zenith Insurance at a recent Work Comp conference and she shared this amazing story with me. She talked about a crew of grafters, the people who grafter grape vines. The owner of this vineyard treated his people well, made sure they had the right safety equipment and support. Everyone in Napa wanted to work for them while most of his competitors were struggling to get anyone to apply for a job.
When low satisfaction is combined with things like poor communication, it can also lead to higher levels of burnout. For instance, remember, the healthcare system has been suffering from high levels of burnout in recent years among both primary care clinicians and staff. Many are connecting this to the high levels of burnout.
Downward Spirals
Sometimes, the simplest cause of turnover is the fact that others are leaving your company. This could be due to competitive pay, your health benefits program, career development — you name it. Regardless, when employees leave, it can create a chain reaction for the remaining employees.
The first pressure point is that one of your current employees has to pick up the slack for the missing team member immediately. This creates more effort for the rest of the team, which can lead to burnout (see the previous section for that one). If other factors are at play, like dissatisfaction or poor workplace culture, this can lead to a downward spiral as one employee influences another in a negative “domino effect” of quitting.
Skill Gaps
When workers lack the skills and training to do their jobs, it can negatively impact their desire to work.
Employers must provide opportunities for continuing education and training to keep their workforce operating at peak productivity. They should also invest in matching skills with job qualifications at the outset of filling a position.
There are plenty of reasons turnover rates can be high. The good news it’s an easy problem to deal with if you’re willing to put in a little time and effort.
However, if you really want to effectively reduce your turnover rate by 37% or even more, you need to start with one thing: improving your hiring process.
Stem the Bleeding: Terminating Turnover Costs at the Hiring Phase
Hopefully, by this point, we’re all on the same page. Turnover is a uniquely painful problem at the moment, and it’s a very expensive drain of resources.
So, let’s talk retention strategies. How can you start retaining more employees? At The Hire Talent, we’ve found one of the most proven retention strategies of them all is perfecting your hiring process. Hiring the best person for each position is ground zero for retention success. When an employee leaves, invest the time and resources into a new hire so that the turnover cycle doesn’t repeat itself.
If you can lower your turnover rates by starting with who you hire to replace employees you’ve lost, it can have a positive chain effect on your entire company.
That said, if you want to turn the tables on high turnover rates, anticipate your hiring needs.
Make a thorough analysis of current needs, skill gaps, cultural concerns, and so on. Build the strategies and find the tools that can help you use that information to make every single hire count.
Improving your employee retention rates starts with finding game-changing tools like IntegrityFirst. The assessment tool is a powerful way to strengthen your hiring judgment. By using integrity as a core hiring standard, you can build a foundational team that is loyal and generates higher ROI.
Using an job-specific pre-employment job candidate assessment tool clears what is too often a muddled and overwhelming hiring process. IntegrityFirst helps you weed through long lists of candidates who are prone to counterproductive behavior, leaving you with a short list of honest and productive candidates right from the beginning of the hiring process.
Using tools like IntegrityFirst can set the stage for a smooth, streamlined hiring process. It helps you identify qualified and honest candidates who can become core long-term members of a healthy team. Setting up the tool also gives you time to consider your hiring strategy, integrate employee feedback, and establish what standards and ethical elements matter to your business.
Reduce Employee Turnover With a Healthy Hiring Strategy
When you use the right hiring tools and employee retention strategies, it organically reduces your turnover rate over time and paves the way for other benefits, including:
- Higher productivity: One of the obvious costs of high turnover is that it can lead to decreased productivity. Hiring the right people and losing fewer employees over time can raise your company’s productivity across the board.
- Lower training costs: Onboarding costs time and money. It’s an employee turnover cost that requires minimal investment when you don’t have to hire as often.
- Retention of institutional knowledge: Institutional knowledge grows over time through things like hands-on experience and leadership development. When you retain employees, you also keep their knowledge within your company.
- Higher morale: When employees quit, it has a ripple effect on other employees. Keeping your staff present and accounted for boosts overall satisfaction of employees.
- Better brand reputation: When you hire the right candidates from the jump, it isn’t just the cost of excessive hiring and onboarding that you avoid. High retention also fosters good will and loyalty, which positively impacts a company’s reputation.
- Improved engagement: Many organizations suffer from unhappy, disconnected employees. When your new employees fit their roles and work with honest integrity, it can lead to a more invested and engaged workforce.
- Greater continuity: Involuntary turnover doesn’t just impact general productivity. It can also make it difficult to maintain continuity in operations. Effectively vetting candidates and making the right hires ensures that your staff and C-suite will provide consistency over time.
- Lower recruitment costs: Recruitment is one of the direct costs that can drain a company’s resources when turnover is high. When you reduce turnover rates, it can save your organization cash on the front end (assessment, interviews, onboarding, etc.) as well as on the back end (exit interviews, excessive worker’s comp claims, etc.)
- Positive workplace culture: Retaining employees typically goes hand in hand with cultivating a happier workforce and the ability to improve company culture. When your company’s culture is healthy, it contributes to a self-perpetuating cycle of low turnover rates.
- Improved communication: When you retain employees over time, it leads to stability and familiarity, both of which help with communication. Even when someone does leave, good communication can generate honest feedback when you conduct exit interviews that can be used to help other employees and new hires.
Higher employee retention can lead to all of these benefits — and it all starts with making the right choice with each new hire. IntegrityFirst can supercharge the quality of that hire, boosting the quality of new employees and turning a high-turnover nightmare into a utopia in the process.
So take stock of your current employee retention statistics. If you find that you’re bleeding quality workers on a regular basis, consider how you can stem the outflow of staff members, starting by putting systems like InegrityFirst in place to improve your talent pipeline for the foreseeable future.
The results will speak for themselves. We promise.
Happy hiring!
