Friday, July 8, 2011

Employee Turnover: The Most Misunderstood Expense in Business

The cost of turnover is a major problem.  This could be the most misunderstood and under estimated expense in business.  Depending on the capability to recruit, the length of the standard learning curve for new staff and the actual turnover rate, the numbers can be extremely large.

In addition to the direct cost of hiring and training new staff, the financial impact of lost efficiency and the stress induced on current employees resulting from the recruiting period and training requirements after a new hire is quite significant and it cannot be easily calculated.  The problem is threefold.

1.       The process of recruiting and hiring replacement staff can take weeks or even months to successfully complete.  Until it is finished there is a need for existing staff to provide support in completing the tasks required of the vacant position while at the same time meeting the requirements of their own positions. 

2.       Once the process has been completed, the amount of time it takes the new employee to get through the normal learning curve can also take weeks or months.  During that time there is a tremendous gap in productivity vs. compensation.  Until the new employee is fully trained, there is a serious negative leverage working on the profitability of the company. 

3.       Training new employees has both a direct and an indirect affect on current staff members.  Where time is required of the existing staff to train, it directly reduces the time available for them to respond to normal operating issues.  Also, the need to cover gaps in efficiency caused by the learning curve indirectly affects the performance and morale of other staff.  The existing staff members often find themselves in a position where they are unable to complete their own tasks on time while being required to assist in covering the requirements of the newly staffed position. 

Each time these situations occur, the stress on the organization is significant and, depending on the specific circumstances, can continue for extended periods.  The effects are more severe in smaller organizations where the absence of one individual can have a dramatic impact on the overall staffing and there are not as many other employees to cover the gaps in efficiency.  The issues arising from these situations can have far reaching affects on the entire organization. The message here – serious consideration should be given to staff retention and the relationship to overall payroll costs.

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