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10 Direct and Indirect Costs of Employee Turnover

April 20th, 2021

Keeping employees is an important aspect of a good organization. Employee turnover can have a significant impact on your organization, especially if you are losing your top performers. You can lose people in two ways:

  • Voluntary or dysfunctional turnover: When a skilled and well-performing employee exits the company and takes another job. The loss of this person negatively impacts the company.
  • Involuntary turnover: When the company initiates the release of an employee because of performance or other issues.

There are direct and indirect costs associated with each type of turnover, but dysfunctional turnover can have a bigger impact on your company.  There are costs incurred not only with finding a replacement, but also the impact of turnover on morale, culture, and how it affects your customers.

employee turnover: dysfunctional turnover direct and indirect costs

Losing top performers can be expensive. Here are the direct and indirect costs of dysfunctional turnover:

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Direct Costs of Employee Turnover

The direct costs of employee turnover are easier to account for. You can figure out a dollar value for the amount of time and resources you use to replace an exiting employee. Here are the main direct costs:

  • Recruiting a replacement: There is always a cost to hiring new people. Recruitment and background check fees, and the amount of time others in your company spend on the process.
  • Advertising: You will need to spend money to put up your job ads online. Marketing, paid ads, and other advertising costs add up.
  • Onboarding: Providing access to onboarding documentation, new employee equipment, paperwork, benefits packages, and providing access to company resources.
  • Time to interview and assess candidates: The number of hours your people spend reviewing resumes, preparing for and conducting interviews, and choosing a replacement.
  • Time to train new employees: Once you hire a new employee, you’ll need to invest time in training and coaching them on the job. The number of hours spent doing this can add up quickly.

Indirect Costs of Employee Turnover

The indirect costs of losing an employee are more challenging to track, but they can have just as much of an impact on your company. The top indirect costs are:

  • Knowledge loss: With every employee you lose, a certain amount of important knowledge and expertise walks out the door with them.
  • Productivity dip: Expect an exiting employee’s production to dip once they’ve made their decision to leave. There will also be a loss of production as the replacement employee ramps up in the role.
  • Trade secrets: Your loss can be another company’s gain. Expert insider knowledge can be passed on to your competitors if they hire your ex-employees.
  • Lost motivation: It can be challenging for your current employees to stay motivated with so much movement happening in your company.
  • Morale: If turnover is high in your company, morale can suffer. People can feel like they are “on a sinking ship.” A lot of pressure is often put on those who stay and have to pick up the slack.

Read More About Employee Turnover
What Is the Financial Cost of Employee Turnover?

Watch: 4 Crucial Ways to Reduce Employee Turnover

Why Do People Quit? Report Suggests 3 Key Factors Predict Employee Turnover

Are You Prioritizing Retention? 5 Ways to Retain Top Executive Talent

 

IQ PARTNERS is an Executive Search & Recruitment firm supporting clients across the country. We help companies hire better, hire less & retain more. We have specialist teams of recruiters in Executive Search / Board & C-Suite, Technology, Media, Digital & Marketing, Accounting & Finance, Financial Services & Insurance, Cannabis, Startup, Data Science, Consumer, eCommerce & Retail, Operations & HR, Manufacturing, Supply Chain & Engineering, Legal & Professional Services, Pharmaceutical & Life Sciences, Non-Profit & Sustainability, and Sales. Click here to view current job openings and to register with us.

Ross Campbell

Ross Campbell is a Partner and Practice Lead, Financial Services & Insurance with IQ PARTNERS. Celebrating over 10 years of management consulting experience in executive search, recruitment, and training in Canadian financial services and insurance companies, Ross thrives on the belief that business can be done significantly better by investing in the right people.

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