Even during a time of economic uncertainty and high unemployment rates, employees are quitting their jobs at steady rates, putting a crimp on businesses in a variety of ways. Thankfully, talent acquisition professionals are in a position to be strategic and valued advisors by helping their organizations curb the high cost of employee turnover. Every employer wants to keep talent and avoid unnecessary, compensation-related exits.
Turnover is a problem for nearly all U.S. organizations. Gallup says the annual overall turnover rate was 26.3% in 2017. According to the 2018 Mercer U.S. Turnover Survey, average annual turnover percentages vary widely by industry, from 11.8% for Energy to 60.5% for Retail and Wholesale.
Employee Turnover Cuts into Your Bottom Line
Voluntary turnovers – that’s when the employee decides to leave on their own – cost U.S. businesses $1 trillion a year, per Gallup. How does it all add up so fast? According to Employee Benefit News, it’s because organizations spend about 33% of an employee’s annual salary on the replacement process.
Gallup’s estimates are even higher. It found the total cost of replacing a single worker ranges from one-half to as much as two times the employee’s salary. As a result, turnover and replacement costs for an organization with 100 employees providing an average salary of $50,000 could range from more than $600,000 to around $2.5 million per year, according to Gallup.
Why so high? Because the cost of losing an employee includes a variety of factors. In addition to losing rising stars and damaging morale and possibly, customer relationships, there are additional “hard” costs to consider. They include the cost of hiring (recruiting, advertising, travel expenses), onboarding (training, staff members’ time away from their regular duties) and lost productivity (it can take two years for a new hire to reach full productivity).
According to Bamboo HR, 31% of employees say they’ve left a job within the first six months of their hiring, and 68% of those exited in just three months. And the sad part is, these situations are often preventable. A study by the Work Institute found that more than 75% of employees who left their jobs voluntarily could have been retained by the organization.
Why Employees Leave Companies
While it’s not the sole reason for voluntary turnover, salary is a major driver of these decisions to leave. A 2020 Jobvite survey showed that compensation was an important factor for 54% of employees looking for a new position, second only to career growth (56%). Those reasons for leaving were followed by benefits (at 45%) and flexible schedules (33%).
To cut down on turnover by ensuring organizations are paying their employees fairly, at a competitive market rate or higher market value, talent acquisition pros will benefit from a software solution like LaborIQ® by ThinkWhy. Using LaborIQ, you’ll have access to validated, real-time salary data for more than 20,000 jobs titles for all U.S. markets. The proprietary ATILA™ method uses data science methods that ensure the most accurate compensation answers. Users can customize the data by company size, industry, education and skills required and see quickly whether the talent supply for the job has a surplus or suffers from a shortage in that location. All are factors that will affect the role’s recommended and forecasted salary.
Besides a good salary, of course, employees also want benefits (health insurance, 401k plans) as well as perks such as health club facilities, catered meals and team outings. If they can check off all three boxes – and also have room to grow in their careers – the likelihood of their leaving will be reduced. And you, as a trusted advisor, will be applauded for helping the organization slash its turnover costs and retain its best and brightest. LaborIQ® by ThinkWhy can provide you with a real-time cost of turnover and exact numbers for the cost to correct.
LaborIQ by ThinkWhy continuously forecasts and reports labor data at all levels, measuring impact to cities, industries, occupations and business across the U.S.