According to a McKinsey study, a record number of employees are quitting or planning to leave their jobs in the next 6 months. The data shows that 40% of the surveyed employees said they are at least somewhat likely to quit in the next three to six months. In addition, 53% of the employers said they are experiencing higher voluntary turnover than in previous years, and 64% expect the problem to continue - or worsen - over the next six months.
CEOs may prefer to take comfort in the fact that 60% of employees have said that they were not at all likely to leave their jobs in the next half-year, but employers shouldn't consider this 60% "safe" from the prospect of attrition either. The options are increasing, and with more employers offering remote working choices, these otherwise "safe" employees could change their minds at any moment.
The fact is that there has always been turnover. However, what is interesting and different about these survey results is that 36% of the people who have quit in the last six months have done so without looking for a new job. This is yet another way in which the so-called 'Great Attrition' differs radically from previous downturn-and-recovery cycles of the labour market, and yet another sign that employers may be out of touch with just how hard the last two years have been for their workers.
Based on this, we've decided to look for an answer to the question that probably all managers and HR leaders often ask themselves - what's the real cost of losing an employee and the consequences for the company?
According to a 2020 study by the U.S. Bureau of Labor Statistics, the average annual turnover rate is 57% across all industries, accounting for both voluntary and involuntary turnover. However, the actual turnover rate varies significantly by sector. For example, according to a 2019 survey, tech companies are at serious risk with an average turnover rate of 20.9%, the fourth highest behind retail, manufacturing and consumer goods.
The actual cost of turnover is exceptionally high. It has been estimated that losing an employee can cost a company 1.5 - 2 times the employee's salary. Depending on the individual's level of seniority, the financial burden varies. For hourly workers, it costs an average of $1,500 per employee. The cost jumps to 100-150% of salary for technical positions. At the top of the scale, executive turnover can cost 213% of salary.
Converted into BGN, this means that if the company pays an annual salary of BGN 24,000 for an employee, replacing them after they leave will cost the organisation BGN 36,000 on an annual basis. For three employees quitting on that salary within a year, the cost of replacing them would be nearly 108,000 BGN.
To help you understand why it's so expensive to replace an employee, we offer a list of some of the costs you may face:
Hiring costs - recruitment or advertising agencies commissions can be quite a big expense. In fact, it is not uncommon for recruiters to charge 10-20% of the job's annual salary in the first year. Let's not forget the costs of conducting interviews and the time spent talking with candidates. Post-interview expenses, such as checking references and conducting pre-employment tests, are also high. Direct recruitment costs, such as bonuses, benefits or relocation costs, must also be considered.
Onboarding and training - training a newly recruited employee for a particular job can cost a lot of time and money. In addition, you need to add the cost of purchasing special equipment or supplies for the training. We must not forget that the productivity of these new employees is not quite high while they are in the training process.
Reduced productivity and potentially missed deadlines – it will take some time before the new employee reaches the same level of productivity as the colleague they are replacing. Oxford Economics & Unum claim that this takes about 28 weeks and costs a significant amount of money depending on the specifics of the job and the position of the departed employee.
Broken team spirit – often, the reason is the extra workload they need to take while the new person is being trained and the loss of their colleague.
Creating a negative employer brand as an organisation with high turnover.
The long-term consequences of turnover do not only affect the organisation's profit. High turnover reduces the level of experience and expertise within the company, which leads to reduced productivity and often lower quality, which ultimately harms the reputation of the business.
So what can you do to counteract this process?
The number of employees you lose is a direct result of your decision not to improve your company's human resources. Therefore, your employee retention and development strategy must be clearly mapped out while remaining flexible and adaptable. In addition, gathering employee feedback is vital to creating an effective action plan that reduces turnover.
Find out what your employees are running from; otherwise, you will be putting your business at risk. If the past two years have taught us anything, it is that employees want more investments in the human aspects of work. People are tired, stressed out, and mentally vulnerable, and many may be grieving for loved ones. That's why your employees need a sense of purpose in their work more than ever. They want more social connections with their colleagues and managers and a sense of shared identity.
Increasingly, people are looking for autonomy and flexibility in the workplace. Some employees are deliberately choosing to withdraw entirely from traditional forms of full-time employment. To retain your employees, make sure you offer them this flexibility in their job.
Certainly, none of your employees would turn down a pay raise, bonuses, or perks, but your people want to feel valued by their organisation and managers to a much greater extent. They want meaningful – though not necessarily in-person – interaction, not just 5 transactions.
According to the McKinsey research, there is a serious disconnect between employees' and employers' points of view regarding the leading factors in employees' decision to quit. For example, when employers were asked why their people had quit, they cited compensation, work-life balance, and poor physical and emotional health. These issues did matter to employees—just not as much as employers thought they did. By contrast, the top three factors employees cited as reasons for quitting were that they didn't feel valued by their organisations (54%) or their managers (52%) or because they didn't feel a sense of belonging at work (51%).
Companies and their leaders need to make an effort to understand employees, their needs, aspirations and desires. Leaders have to develop much more profound empathy for what their employees are going through and combine that empathy with a determination to act and change. Only then can employers properly reexamine the wants and needs of their employees and begin to provide the flexibility, connectivity, and sense of unity and purpose that people crave.
So, protect and take care of your people and their development. Invest in them. That investment will pay you back many times over.