A Publication of WTVP

While this economic recovery has been coined the "jobless" recovery, there are a number of employers looking to increase their payrolls with new hires. There's an adequate pool of candidates, but we hear on a daily basis how difficult it is to find qualified applicants for positions employers are attempting to fill. So what's the downside to filling positions with less-than-ideal candidates? They may not stay, or, worse yet, they stay and your job of managing gets really tough. Or think about this: As more and more employers finally begin to hire, your best employees begin looking for that greener grass on the other side.

Recruiting and retaining the most qualified employees is one of the critical issues facing businesses today. The challenges can be overwhelming and directly affect the bottom line. The flipside of retention is turnover. While some may say turnover is a good thing or it's just the nature of a given industry, it can be like high blood pressure-slowly and silently killing your profitability. The intervention is being knowledgeable of what your turnover costs are and managing them. Turnover costs are estimated to be anywhere from 33 percent to 250 percent of annual pay. For example, a $15,000 ($7.21/hr) job may cost anywhere from $4,950 to $37,500 in lost time, money, and business.

Turnover costs can be broken into hard or direct costs, which include separation costs, temporary fill-ins, co-worker overtime, advertising vacancy, interviewing, reference checking, and on-the-job training. Other soft or indirect costs that certainly impact the cost of doing business are reduced productivity-"vacation mode"-prior to departure, lost productivity during training, lost productivity of others, and lost business.

Take a look at a turnover cost scenario in the ideal world: An exiting employee earns $7 per hour, and the supervisor earns $12 per hour. The employee gives one week's notice. Twenty applications are received, and six people are interviewed for the one position. In the panel interview, two other employees and the supervisor are present. The full selection process takes three weeks. There are four weeks of training: one full week off-site and three weeks at 50 percent productivity. You hire 10 employees in this type of position, and you lose, on average, three of these employees per year, which is a 30 percent turnover.

The hard costs of the above scenario, using $7 per hour for the exiting employee, include: $41 for pre-departure costs, $1,592 for vacancy costs, and $1,162 for selection and sign-on costs. Total hard costs: $2,795.

The soft costs of the same scenario, using $7 per hour for the exiting employee, include: $384 in pre-departure lost productivity, $138 during vacancy, $965 for selection and sign-on costs, and $700 for combined impact. Total soft costs: $2,187.

The total turnover costs come to $5,332.

What's the cost of turnover in your organization? Divide the number of employees exiting by the number of organization employees and multiply by 100 for the net percentage turnover. To calculate annual turnover costs, multiply the number of employees exiting by the hard and soft cost for one employee.

How can you decrease or control turnover? Implement the following policies and practices for better retention.

Calculating the cost of turnover is the easy part, now that you know the formula; what to do about it is the challenge. Awareness of an issue is the first step toward to overcoming it. IBI

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