(Part 5) - The Cost of Employee Turnover

Part 5: The Cost of Employee Turnover

Hiring and Onboarding

Employee turnover brings the hiring and onboarding process into sharp relief. While any amount of turnover necessitates future hiring, a poorly executed onboarding process may exacerbate a company’s staffing issues.

While not technically a benefit, the hiring and onboarding process can be critical for employees in forming an opinion of a company. On average, companies have 44 days to influence a new hire’s long-term retention, according to BambooHR.

With employers having little over a month to create a positive long-lasting impression for employees, the hiring and onboarding process is essential for employee retention. It’s not just employees who are looking for the right fit; it’s essential to ensure that new members of staff will fit in with the organization and its culture, and pre-employment checks can help with this process.

Our survey revealed that 86 percent of employers required professional references as a preemployment requirement, followed by a background check at 62 percent, with skills assessments only being required by 45 percent of employers

Meanwhile, the number of interviews required for a role varied greatly by seniority. Entry-level and mid-level positions saw the highest percentage of two-round interviews at 47 percent and 42 percent, respectively. However, as seniority increases, so does the number of interviews, with 44 percent of middle and senior managers going through three interviews and 40 percent of C-suite roles also seeing three rounds of interviews. C-suite positions were also the most likely to go through five or more interviews at 23 percent.

The onboarding process can consist of many different things. For our surveyed employers, team introductions were the most frequent component, reported by 89 percent of employers. This was closely followed by a benefits orientation/overview at 82 percent. In comparison, only 41 percent reported that their onboarding process consisted of a formal mentor/buddy program.

The Fundamentals of Turnover

From separation and rehiring costs to lost productivity, the total cost of employee turnover has a wide range of variables including the industry, the position of the employee leaving and specific on-the-job training requirements. Estimates range from as low as 20 percent to as high as 150 percent of a worker’s salary, which is why it is important to implement systems to calculate your own turnover costs. Beyond direct recruitment costs, turnover can have several indirect costs and implications, including lost institutional knowledge as employees with longer tenures gain a deeper understanding of company policies, processes, and ways to boost productivity. High turnover can also cause a ripple effect, leading to more employees leaving or potentially being unhappy in their positions.

A research analysis study by Viser quantified that members of a team that had a member quit were 9.1 percent more likely to leave compared to teams that did not have someone depart. When reminding other managers or the board of the importance of retention, it is important to try and calculate the cost to your company, including both the tangible and intangible costs for others to clearly see.

1. Calculate your turnover costs:

Determine the period that you will measure – this can be monthly, quarterly, bi-annual, or annual. Use the same period each time to allow true comparative numbers. If using a period shorter than one year, make sure that you can compare it to a similar period in previous years. Dates like the third Friday of January is commonly known as “quitters' day,” so comparing subsequent months or even quarters can give impressions of a trend that is purely seasonal.

An example is if you have an average of 100 employees during your chosen period, and 10 employees have left, then your turnover rate is 10 percent.

2. Determine the average cost to the company for each employee who has left, and then divide the total expenses by the number of employees who have left. Some examples of those costs are below.

A.Tangible costs
Compensation including accrued holiday
Temporary staff hired while waiting to hire new recruits or overtime paid
HR and/or managers’ time for exit interviews and handling additional paperwork
Advertisements for the position/recruitment agency fees
HR/managers’ time to interview, screen, and perform background checks for candidates
Signing bonuses and relocation expenses
HR/managers’ time for orientation, onboarding, and training of new employee

B. Intangible costs
Loss of production
Loss quality of work
Loss of customers
Low morale
Loss of knowledge from the business
Ex-employee moving to a competitor

Expensing intangible costs is more difficult than the tangible costs. Make sure you use the same method of estimating the expenses across the board.

3. Work out your overall turnover costs.

Based on the 100 average employees as above, with 10 people leaving, we have a 10 percent turnover rate. Assuming your tangible and intangible costs equate to $20,000, then you can determine that the cost to the company with 10 people leaving is $200,000.

Understanding what constitutes healthy turnover for your organization is also crucial to addressing problem areas effectively. In some roles, losing even one employee can lead to significant issues from losing investor dollars or confidence to an incomplete project. In contrast, roles that are easy to fill and train pose less of a concern. Using data to identify unhealthy turnover provides insights into where to focus retention efforts. By segmenting employees and grouping demographics based on the data, you can concentrate on high-value employees who are at a higher risk of leaving. These employees should be the primary focus of retention strategies.

Fine Tuning Your Turnover Stats

As well as calculating general turnover, you should look at regrettable turnover – the loss of key performers whose skills, knowledge, and experience are difficult to replace. Measuring regrettable turnover is a more accurate way to determine an organization’s health because it highlights the negative impact on the company by an employee’s exit, ultimately creating an important focus for retention strategies.

Regrettable turnover can be calculated by this equation:

This should be accompanied by calculating high-performer turnover:

and target role turnover:

When considering target role turnover, target roles can be broken down into four categories:

• Strategic roles – those that create competitive advantage, often involving decision making
• Core roles – those that must provide consistent results to achieve business goals
• Proprietary roles – those that are tied to unique or proprietary internal processes or knowledge
• Required roles – those that support the department and are required to keep it moving forward

However, calculating turnover doesn’t stop there. After calculating turnover for the entire organization, you should calculate turnover in common segments to help highlight potential problem areas or groups of employees who may need to be focused on more when it comes to retaining them.

Calculating turnover based on employee demographics, like age, gender, or self-reported diversity measures, can highlight problem areas. Meanwhile, calculating turnover based on tenure can highlight problem areas, such as new-hire turnover or turnover occurring around specific tenure milestones. Calculating turnover by department can highlight if turnover is an issue within certain departments or companywide. Calculating turnover by performance helps identify high performers and core talent to keep and dedicate resources to. Finally, calculating reasons for turnover through exit surveys and interviews can help identify common themes or issues that may need attention, while calculating turnover based on role can help focus on roles that support a strategic priority or highlight where turnover is impacting operations.

Turnover rates are essential for identifying areas that may need more focus when it comes to retention strategies. However, calculating the cost of turnover is equally important and can be found using the equation:

Handling turnover

Canadian companies are continually fighting turnover. When Statistics Canada asked companies how concerned they were by the retention of staff, over 25 percent said they were experiencing challenges in retaining employees. Those companies are also willing to invest to slow attrition down – more than half of those surveyed were ready to raise wages to keep their best, but only 14.5 percent were considering tweaking benefits to help with their retention concerns. That may be a lost opportunity. Based on the feedback we gathered from employees across Canada, we believe that the benefits they offer should be a key weapon in their retention strategy arsenal.

Our data is backed up by other surveys. Glassdoor’s employee and job seeker’s survey, for example, showed that although salaries were the top factor that job hunters looked for in a job advert at 67 percent, and benefits were a close second at 63 percent.

Summary and Conclusion

As our research shows, turnover in Canada is substantial, with nearly a fifth of staff leaving every year. The country’s overall turnover rate of 11.9 percent is somewhat tempered by employers’ cuts. Determining your own acceptable percentage of voluntary turnover is key to benchmarking when analyzing the effectiveness of your retention strategies.

When calculating and considering your turnover rates, it is essential to not only consider the national average but also the dynamics and demographics of your workplace and external factors that could impact employee turnover. Calculating turnover in relation to specific groups and positions can highlight problem areas within an organization where tailored retention strategies may need to be implemented. Knowing the turnover rate of key talent and implementing retention strategies in this area is perhaps the most important area to focus on – at least initially.

Benefit offerings and reward and recognition programs are key factors to consider for reducing turnover rates. Dental coverage, medical coverage, and flexible work options were the top three benefit offerings employees want most, while diversity and inclusion initiatives, family-friendly benefits and support for green or sustainable business practices or programs are seemingly less valued.

In addition, employees highly value workplace flexibility, work-life balance, healthcare benefits, and overall compensation.

When it comes to reward and recognition, however, there was a misalignment between the offerings employees found most important and their satisfaction with these offerings, which suggests a potential area for improvement for employers.

Although it is easy to focus on these headline findings, it is key to consider your workplace’s demographics when considering benefit and reward and recognition programs. Different generations value benefits differently, with older generations placing more emphasis on healthcare and retirement benefits and younger generations placing more emphasis on professional development opportunities and flexible work options.

Ultimately, there is not a one-size-fits-all solution for combatting turnover and improving employee retention. However, listening to the needs and wants of your employees, particularly when it comes to benefit offerings and reward and recognition programs, is a great place to start.

Read more: The best employee recognition programs in Canada

GOOD RETENTION STRATEGIES

• Target your recruitment adverts for the type of employee you think will fit your culture best. 
• When recruiting, make sure you are very clear about the role and expectations. 
• When recruiting, be very clear about the culture of the workplace, include questions to determine if they will fit into your culture.
• Ensure your onboarding practices are working – survey new recruits and check in on them.
• Adapt a strong onboarding practice.
• Be upfront about expectations.
• Consider the differences between the different generations’ needs and wants.
• Implement leadership training.
• Review your benefits package.
• Implement good mental health practices.
• Allow flexible working.
• Regular training across the board.
• Regular salary review.
• Regular catch ups.
• Highlight top talent within your workplace and consider retention strategies for them.
• Prioritize job satisfaction.
• Include strategies to foster a positive and inclusive workplace.
• Encourage feedback – and use the knowledge you gain.
• Effect a good performance management strategy.
• Provide opportunities for professional development.
• Leverage the collective strengths of your generational and diverse employees.
• Align your rewards and recognition program with what employees actually want.
• Don’t just provide standard rewards. Recognize those who go above and beyond accordingly.
• Benchmark your own turnover.
• Understand where your turnover is coming from and why.
• Understand the reasons for regrettable turnover.
• Make sure your exit interviews are conducted in the best possible way to get the best feedback.

Annual Employee Turnover and Benefits Benchmarking: Key Takeaways from CHRR’s 2024 Report

• Baby Boomers prioritize healthcare coverage, retirement benefits, and flexible work options
• Generation X places strong importance on work-life balance and autonomy.
• Millennials are known for their emphasis on career development, mental health resources, and flexible working conditions.
• Generation Z is emerging as a highly entrepreneurial and progressive group. They demand flexible work options, mental health support, and social responsibility initiatives from employers.

Shifts in Company Tenure and Turnover Rates

• Long-term employment (10+ years) has dropped to 35.9%,
• Short-term employment (less than one year) has also decreased slightly to 14.3% in 2023
• Voluntary turnover in Canada sits at 11.9%, a considerable reduction from a rate of 15.5% in 2023.

Benefits and Retention: A Generational Perspective

Across all generations, healthcare benefits and flexible work options remain the top retention tools. Tailoring benefits to the specific needs of each generation can maximize their effectiveness.

• Baby Boomers and Generation X consistently rank retirement benefits, healthcare, and vacation time
• Millennials and Generation Z, on the other hand, demand career development opportunities, mental health resources, and flexibility.

The True Cost of Employee Turnover

The report underscores the financial impact of turnover, with costs ranging from 20% to 150% of an employee’s annual salary.

Recognition, Rewards, and Employee Satisfaction

While monetary bonuses are appreciated across all generations, the report finds a significant gap between the importance employees place on rewards and their actual satisfaction with company offerings.

• Only 24% of employees aged 18-25 rate their company's bonus program as exceptional,
• Older employees, particularly those aged 55+, value additional time off and flexible retirement options,

Benchmarking Best Practices for Employee Retention

Flexible work arrangements, mental health support, and competitive healthcare benefits are the most effective tools for retaining employees across all generations.