Staff turnover is a reality that every business deals with, but many fail to recognize the costs that come with it. The financial burden when you hire new personnel or replace former employees can weigh more heavily than you might realize.
The costs associated with employee turnover and the following recruitment process go beyond the surface-level expenses. It involves more than the financial budget for job ads or the process of locating replacements. There’s also the time and effort of those handling the hiring process, plus the money paid to temporary workers.
The truth is, all these hidden costs can end up being a lot more than you initially thought. So what are these costs, and how exactly do you calculate them? To gain a clear picture of this, we will explore the direct and indirect costs involved in employee acquisition. Once you account for the costs involved, it can serve as a valuable foundation for improving employee acquisition through best practices.
Employee acquisition involves both direct and indirect costs.
Hiring, training, and recruiting clearly incur direct costs associated with staffing. However, it’s not always obvious how quickly these costs can add up.
For instance, you need to take into account not only ad placement and/or search firm fees. There's also the time spent by search committee members and HR staff to consider. Moreover, you must account for the compensation for interim contracts or temporary labor.
Stephen King, president and CEO of GrowthForce, told Forbes 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.” That means there is also an associated opportunity cost linked to lost productivity.
Worse, when vacancies occur in the office, other team members' workloads increase. This can lead to stress and tension, which can negatively affect morale and reduce productivity overall.
In short, employee turnover comes with significant cost. One study found that turnover can cost as much as 33% of an employee’s annual salary. To put some numbers on it:
- The National Association of Colleges and Employers found that the average cost of a new hire is $7,645.
- Another study, from the Society for Human Resource Management, found the average cost per hire is $4,129.
- Glassdoor also estimates the average cost of hiring a new employee is around $4,000.
How can you use this information?
For small to mid-sized business owners, workforce management can be a crucial challenge. This is where the expertise of HR departments comes into play, having the potential to save businesses time and money. By implementing effective HR policies, businesses can proactively minimize the impact of employee turnover. Consider some of these employee acquisition best practices:
- Try to hire from within, which is generally less costly – sometimes significantly so – than hiring externally.
- To that end, create an employee referral program alongside employee development programs.
- Make every effort to retain current top talent. The best way to curb turnover costs is to prevent turnover in the first place.
- Sharpen external recruitment procedures to make sure new hires will fit long-term.
Many small to mid-sized businesses experience the challenges posed by employee turnover in today's fast-paced landscape. However, many business owners often fail to recognize the costs associated with turnover. The costs involved in hiring new employees or replacing former ones can easily overshadow initial expectations.
The costs of employee acquisition involve more than background checks, pre-employment screenings, or advertising job descriptions. There are also less obvious expenses tied to hiring a new employee. These indirect costs could include the work done by those hiring or the reduced productivity with open positions.
The hidden costs can be an eye-opener for business owners who want to strengthen their employee hiring and recruitment. It is essential for the overall business plan to identify these costs and incorporate them. By understanding both the direct and indirect costs involved in employee acquisition, you lay a solid foundation for implementing best practices.
In the end, the expenses related to hiring and training can greatly affect the success and cost of recruiting. Considering all the costs helps businesses decide how to divide job tasks, make new positions, and retain current employees.
CoAdvantage, a Professional Employer Organization (PEO), dedicates itself to supporting small and medium businesses. Our expertise spans a range of HR functions including human resources, payroll processing, employee benefits, and more. If you're seeking to build a thriving work environment that proactively addresses turnover, we invite you to reach out today. Let's elevate your employee acquisition strategies today!