Employers have wrangled with high employee turnover since the pandemic. And it’s costing us all a fortune.
2020 was an inflection point. I probably don’t have to remind you.
So much changed so quickly during the COVID-19 crisis, but perhaps nothing changed so profoundly as the labor landscape. A wave of shutdowns, furloughs and layoffs gave way to the so-called Mass Resignation. During “The Big Quit” of 2021, the Bureau of Labor Statistics estimates that some 47 million Americans left their jobs voluntarily.
The pandemic is history. It’s not quite ancient history, but I think we’re all happy to put it in the rearview mirror.
And yet, it leaves behind peculiarities in the labor market that are forcing employers to make permanent adjustments. Perhaps most persistent and pernicious among these peculiarities is our stubbornly high employee turnover rate. Some sectors struggle more profoundly with this issue than others–hospitality, retail, manufacturing, and education among them.
But in reality, high employee turnover is a major challenge and a problematic line item for employers in every industry. In the discussion that follows, we’ll take a closer look at the high cost of employee turnover, how it may be crushing your operating budget in ways you can’t even see, and what you can do about it.
Quitting Time
Today, an average of 3.5 million Americans quit their jobs every single month!
At the height of the Great Resignation in 2021-2022, that number exceeded 4.5 per month. While the rate of quitting has tailed off since reaching that highwater mark, the current pace still represents a very real and very expensive challenge for employers.
In addition to the high costs that come with recruitment, hiring and consequent replacement, this type of instability can impede the quality of your output and damage morale. In this regard, it’s difficult to quantify just how deeply high turnover impacts the infrastructure and employees left behind.
And again, while the pandemic is in the past, most employers suspect that turnover trends will not only continue, but intensify, in the immediate future.
In a recent poll of hiring managers, 33% of respondents said they fear employee turnover will go up over the coming year. There’s some evidence that they aren’t just paranoid. A 2023 poll of workers found that 20% planned to leave their jobs in the near future.
Where Is Everybody Going?
Our recent labor shakeup revealed, and perhaps hastened, a transformation of the American workforce. As Baby Boomers transitioned into retirement and Gen Z workers entered the labor market, they carried with them new expectations about long-term employment, work-life balance, and compensation.
The transitioning workforce pushed these expectations to the hiring foreground. Indeed, the top reasons for high employee turnover, says an article from HR Dive, include “better pay or benefits elsewhere (38%), increased workplace demands (35%), employees resigning (33%), employee feelings of being overworked (31%) and a competitive job market (26%).”
Some of these challenges may reflect underlying issues in a given organizational culture or industry. In a great many instances, these issues stem from faulty hiring practices. Whatever the particular causes of turnover for your organization—and they vary from business to business; industry to industry—the costs have the potential to be enormous, even devastating, to your operating budget.
The Cost of Rehiring
In our last article, we discussed the high cost of a bad hire. From the capital invested in recruitment and onboarding to salary and benefits, hiring is expensive. And that’s just what it costs when you get a good employee–somebody who is qualified and committed to the role.
But what happens when you get a “bad employee”—or perhaps simply an employee who is a poor fit and is therefore more prone to turnover?
Of course, there is the cost of rehiring to consider. According to Indeed, when an employee departs prematurely, you can expect to spend between one-half and twice an employee’s annual salary to hire their replacement.
In addition to the initial cost of hiring, and the subsequent cost of hiring a replacement, hiring mistakes can carry peripheral costs including lost productivity, damaged morale, and diminished brand reputation.
Together, these expenses underscore the enormous potential cost of employee turnover to your business…of just a single employee!
So what about systemic high turnover? What is that costing your business?
The Cost of Systemic High Turnover
According to HR Dive, a survey of more than 1,000 hiring managers revealed that companies wasted an average of more than $36,000 per year on lost production and hiring costs. 20% of those respondents said the cost for their company was actually closer to $100,000.
So what does that amount to across the U.S. economy? In lost productivity alone, says a HubSpot study, American businesses are bleeding a staggering $1.8 trillion every year!
As ostentatious a figure as this is, it may not even capture the full scope of what we’re losing. The cost of high turnover goes deeper still than just the cost of rehiring and lost productivity.
In fact, there’s evidence that it can permeate every aspect of your business.
The Hidden Costs of High Turnover
Let’s begin with the somewhat incalculable cost of diminished employee morale. According to HR Dive, 73% of respondents said that the burden of high turnover often fell heaviest on the employees who remained behind. It’s difficult to know just how much this can cost a business in lost productivity, diminished customer service, and mental health strain.
By contrast, it may be possible to quantify the cost that high turnover can have on quality control. A fascinating article from the Wharton School explains that the cost of employee turnover far exceeds the simple expense of replacing an employee. The study of assembly workers in a Chinese smartphone factor found a direct and compelling correlation between product quality and turnover.
Researchers found that the factory saw its highest employee turnover rates directly after each monthly payday. They also found that product failure was 10.2% more common for devices produced during that period. Moreover, assembly lines experiencing higher turnover generally averaged 2% to 3% more product failures than lines with lower turnover.
According to the study, “The associated costs amounted to hundreds of millions of dollars.”
What You Can Do About High Employee Turnover
Suffice it to say that the costs of high turnover that you can actually see are already high enough. The costs you can’t see may be even higher.
Naturally, this is an unsustainable way to do business. The good news is, there are some things you can do about it. You may not be able to prevent turnover entirely. It’s true that today’s workforce is simply wired differently than those of generations passed.
Few Gen Z workers would express the desire to find and remain in a single organization for the duration of their careers. That said, you do have the power to reduce turnover by taking the problem at its root: hiring.
Retention issues stem from recruitment issues.
This is a belief that helped inspire the creation of SuccessPortraits. Our Personality Assessments are designed to help you recruit the kinds of new hires that match your company culture, meet your job qualifications, and share your organization’s goals. In short, our hope is to produce assessments that make it easier for you to identify employees that will be with you for the long haul.
Complete a sample assessment today and see for yourself!