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Business team working on new project and smiling. GettyEveryone has his own reason for being a fan of “The Office.” One of the universal reasons it’s so popular is that it looks like a fun place to work — even if it also seems like an endless distraction. Perhaps the Scranton branch succeeded when so many others were floundering because the Scranton employees were having fun, enabling them to constantly surpass expectations. The show also had moments that captured the reality of working in an office. Think about the panic and fear the characters experienced in episodes like “Branch Closing.” Michael Scott prematurely announced that everyone was probably going to be fired. Suddenly, Dunder Mifflin didn’t look like such a great place to be. However, Scranton survived and absorbed the Stamford branch. Eventually, a majority who transferred to Scranton quit because they couldn’t gel with Michael Scott’s version of the company. The reality is that regardless of the size of your business, employee turnover is a major concern. Whether it’s because of cutbacks or employee dissatisfaction, if it becomes a frequent occurrence, it can have serious implications for your business. Crippling Direct Employee Costs Employee Benefits News reported in 2017 that turnover can cost employers 33 percent of an employee’s annual salary. The culprit? The hiring of a replacement. To put a dollar amount on it, if the employee earned a median salary of $45,000 a year, this would cost the company $15,000 per person — on top of the annual $45,000. Considering that a survey from Willis Tower Watson found that one in three hires will leave a company within two years, you see how quickly this can add up. But why does it cost so much to hire a replacement? As explained in “The Cost of High Employee Turnover,” it’s the result of several direct costs. Hiring costs, such as fees to recruiters or advertising, can be pricey. In fact, it’s not uncommon for recruiters to request 20-30 percent of a new hire’s first-year salary. Interview expenses, including travel and the time spent interviewing candidates, pad the costs. So do post-interview costs, like checking references and administering pre-employment tests. Direct employment costs, such as signing bonuses or relocation expenses, have to be factored in, and that’s not even counting onboarding and training. The cost of training the new hire for her specific job can be high, including the cost of preparing training materials, benefits enrollment, and administrative processing. And you have to add in accommodation costs, such as purchasing special equipment or supplies. That’s, of course, not to mention that these new employees aren’t producing at a high level while in training. Stephen King, the president and CEO of GrowthForce, adds that “external hires demand 18-20% more in salary than internal hires.” Depending on the state you’re in, you’re still responsible for the former staff member’s paid time off, as well as any overtime you’re paying your team to pick up the slack while you’re in transition. To directly assess much employee turnover will cost you, use an Adecco or Bonusly turnover calculator. Sneaky Indirect Turnover Costs King adds that it usually “takes 8-12 weeks to replace a knowledge worker, and then another month or two before the replacement gets to full productivity mode.” If the team member who left was bringing in $100,000 in revenue, that means your company will experience $25,000 less in income and profits for the next three months or so. Additionally, during the first couple of months, you, the trainer, and trainee are pulled away from more important work until the new hire gets in the groove. And to ensure no one else jets, you may have to spend more one-on-one time with the rest of your team members. There are also some additional hidden costs associated with employee turnover that can harm the workplace. For starters, you’re asking your best employees — who are likely already working at full capacity — to either take on additional tasks that the departed employee was responsible for or to show the new hire the ropes. It can also do serious damage to morale. If the former employee was close to people who stuck around, they may no longer have a friend at work and become sad or resentful. Others may begin to question whether they should also jump ship. If no one enjoys showing up to the office, they’re not having any fun. Although having fun may not be your main objective, the fact of the matter is that happy employees are healthier, more creative and productive, and better at collaborating. Also, a fun workplace will help attract more top talent to your organization. Why People Quit — and What You Can Do About It If you want to reduce employee turnover and maintain a fun work environment, you first need to understand your team’s pain points. Typically, this includes three categories: interpersonal issues, workload problems, or a lack of recognition. The former includes working with clients or customers who are too demanding. It can also point to overly demanding managers or conflict-happy co-workers. When it comes to workload, one of the biggest factors is being expected to work overtime, like coming in on the weekend. Feeling burned out, having too few employees for the volume of work, and working around burdensome processes can all lead to work fatigue. When it comes to a lack of recognition, employees may feel unacknowledged for their hard work. They may resent a lack of career development or a low salary, especially if it’s not competitive for the region you’re in. Of course, to find out your team’s specific pain points, carve time out of your schedule to determine what’s bothering them and what can be done to change it. In most cases, you can keep your best employees by awarding a goodwill boost to their salary, implementing real work/life balance, creating an environment that boosts productivity, offering professional development, and acknowledging their hard work. Most importantly, you need to assess your company’s culture and create a fun environment so people are satisfied. This could include hosting casual Fridays, having friendly competitions, celebrating wins, or throwing birthday parties that would make Michael Scott envious. You could also think outside the box and go on an outing, like volunteering for the day, hiking, or attending a sporting event. You could welcome your team members’ pets, treat your staff to a catered lunch, or encourage creative work areas that are filled with your team’s favorite art, books, or furniture. We often don’t think work should be fun. However, Michael Scott knew what he was doing: Having a fun work environment not only creates a happier and more engaged team, but it will also influence people to stick around. By reducing employee turnover, you won’t have to worry about the direct and indirect costs that can kill your business.
The cost of employee turnover goes farther than many people realize. There’s the direct cost of replacing that employee, which can run into the thousands of dollars. But there can be other, indirect costs to employee turnover. Some of these costs can impact your business right away, while others have a more long-term negative effect. Here are five hidden costs to watch out for when employees leave your organization and steps you can take to avoid or reduce these losses. 1. Turnover can damage your employer brandAll organizations must deal with turnover. The way they manage it makes a big difference in how employees, partners and customers perceive it. Frequent or poorly managed turnover can stress employees and erode relationships with customers and partners. Then, a cascade of dissatisfaction can increase turnover. It can also brand your company as dysfunctional. That can reduce the number of candidates you have for the positions you need to fill, increase your time to fill jobs and increase your cost per hire. This is a worst-case scenario, and it doesn’t happen overnight. You can avoid it by understanding and managing these other costs of employee turnover. 2. You may lose valuable knowledge and relationshipsEach of your employees builds knowledge over time that’s unique to them and helps the company. For example, a sales team that loses a key player also loses the detailed knowledge that employee had about:
If those customers feel your team’s service decline after that employee leaves, you may lose their business. In a manufacturing plant, a senior line worker leaving may mean losing knowledge of how your machinery operates when it needs maintenance or repairs. That knowledge loss can lead to costly production shutdowns and emergency repairs if equipment breaks. To avoid this hidden cost or reduce its impact, there are several steps you can take:
By building a culture of knowledge sharing and planning for knowledge transfer, you can reduce the likelihood of turnover-related information losses. 3. Team productivity can take a diveOften when one person leaves a team, the team is in effect down two people for days, weeks or even months:
Until the position is filled, the manager must focus on finding the right person. Once a new hire is on board, the manager or a top-performing team member needs to devote time to training the new employee. The need to focus on hiring and training can impact the whole team as they pick up the former employee’s work plus any work the training manager no longer has time for. When team members have too much on their to-do lists, their engagement level and their effectiveness can suffer. It may not be possible to completely avoid a drop in team productivity after an employee leaves. However, there are things you can do to manage and reduce the impact. 1. Resist the urge to put a body in the position as quickly as possible.A bad hire can be extremely costly, because it often leads to more turnover and lost productivity. If the position is purely tactical, it may be wise to bring in a temp until you can make the right hire. Otherwise, you may have to divide up the work among the team. 3. Talk with the team about how to redistribute those responsibilities until you make a new hire.Emphasize that you want to find someone who’s a good fit for the role and the team, and that may take time. By managing the team’s expectations and getting their input on the division of extra work, you can reduce the sense of overwhelm that your team might otherwise feel. 4. Employee development can stall outWhen a team suffers from frequent turnover, there can be another opportunity cost: development. Managers focused on filling positions and training new hires may not have the bandwidth to also keep up with succession planning, cross-training and employee development. Even if the managers do have time to focus on hiring and developing existing workers, team members may be too busy with extra responsibilities to follow a development plan. Over time, this can feed a negative cycle, in which the team’s development and performance lags, which leads to more turnover. To avoid getting stuck in this costly loop, make fixing your turnover issue your top priority. Trying to move a team forward with constant turnover is like trying to sail a leaking ship. Until you plug the leak, you won’t get anywhere. To “plug the leak,” you must understand what’s causing your turnover problem:
One effective way to stem turnover problems is to gather information from your people. Exit interviews for all voluntary separations can help you understand why they left. Climate surveys can show you what your employees think of the organization right now. However, if you conduct climate surveys, you must be willing to implement changes based on the results. Asking for employee input and then not acting on it can backfire and lead to more turnover. Once you take steps to cut turnover, you should be able to focus more on employee development. 5. Turnover can disrupt team dynamicsEven a single employee departure can affect the way your team works together. Having a knowledge-sharing plan in place and managing expectations for productivity and development during hiring searches can help. It’s also important to monitor the way an open spot affects team members individually. Top performers are often impacted the most by turnover, because they’re so strongly motivated by teamwork and shared goals. They may find themselves stressed or discouraged by the departure of a teammate. Other employees may complain about the extra work they’re taking on, or the uncertainty of when the open position will be filled. To counteract changes in your team’s attitude, make sure your top performers know you appreciate their work. And manage complainers so their venting doesn’t create a contagious culture of negativity that can lead to more turnover. By managing expectations, keeping communication open and supporting your team, you can minimize hidden cost of employee turnover and keep your people on track to reach their goals, even when you’re a team member short. Do you want more insights on reducing turnover and increasing employee engagement? Download our complimentary e-book, How to develop a top-notch workforce that will accelerate your business. |