The Real Cost of High Employee Turnover

Posted on 12 July 2017 by Xref in Human Resources

People who are happy and motivated are undoubtedly more productive. The impact of disengaged staff is often recognised as nothing more than a turnover figure. But, what - in broader terms - does this number means for your team and your business?

A recent study by the Australian Institute of Management found that the average cost of replacing a staff member is greater than $26,000. The research also revealed that businesses are worried staff turnover levels are directly attributable to workplace culture. 

Maybe cancelling Friday drinks wasn’t a good idea after all?

Employee turnover is a normal part of the business cycle. Bernadette Kenny reported in Forbes magazine that any rate below 15 percent per year was considered normal and healthy. If your rate starts to creep above this, then beyond the monetary requirements of finding new staff, there are a number of ways your HR team and broader organisation can be impacted.

1. Time wasted

Traditional pre-employment checks are tedious and can take up to 3 days or longer to complete. Even worse, our Recruitment Risk Index showed that hires are often made based on unreliable information and inconsistent methods of data collection. Not doing these critical processes well, not only wastes time but can lead to expensive long-term hiring mistakes. 

2. Advertising costs 

Trawling your network of contacts, creating a perfectly worded advert and paying to have it posted on a job board, are just the first few steps in what can be a long and expensive candidate attraction process. When the urgency to fill the position is high, getting these right under pressure can be difficult. It can lead to a significant amount of wasted time and money when the process does not result in the right candidate being identified and interested in the role.

3. A knock to workplace culture 

When numerous employees leave, especially senior members, it can have a significant impact on the morale and culture of the workplace. Speculation and gossip can create a culture of instability, resulting in the snowball effect of additional lost staff.

4. Opening the organisation up to risk

With every new hire, there is a risk. These risks can be imposed by either the candidate or the organisation itself. The 2016 Xref Recruitment Risk Index found a significant number of candidates admitted to deceiving potential employers by providing an inappropriate referee. But it also highlighted that referencing inconsistencies and a lack of experience driving the process led to 29 percent of referees being asked discriminatory questions about a candidate. This is staggeringly high for today’s workforce and puts organisations guilty of doing it at risk of a legal battle.

5. Dwindling productivity levels

A new recruit will always offer lower productivity levels than their predecessor. The burden on senior staff to get new recruits up to speed can also have a significant impact on the productivity of the wider team. It can also take a while for teams to come to terms with working alongside or being managed by an unfamiliar face.

6. Onboarding and upskilling costs

Seminars, inductions, training and long-term development can cost an organisation thousands with each new hire. Our 2017 Recruitment Risk Index found that 78 percent of HR managers were not making use of data generated from reference checks. When reference questionnaires are tailored to the role and optimised correctly, they provide valuable insights on the training and management the new recruit may require well before their first day.   

The impact of having to rehire is high, in terms of both direct and indirect costs. Being able to reduce turnover through engagement is important but starting with reliable recruitment is the critical first step to minimising bad hires and lost talent. The reality is that people will leave an organisation at some point, even if they were the perfect hire. So, HR teams must ensure they have the most insightful and efficient processes in place to minimise the time to hire when unexpected losses arise.

Want to learn more? Download our Recruitment Risk Index

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