by Larry Berglund, SCMP, MBA, FSCMA
Presentations Plus Training & Consulting Inc.
Staff turnover is a fact of life in today’s workplace, and progressive organizations recognize the importance of being proactive in minimizing this phenomenon. While tangible costs related to staff turnover include advertising, interviewing, training and lost productivity, the less tangible costs are often of greater concern. These can include effect on staff morale, poor corporate image, customer service problems, lost customers or clientele, supplier performance problems, back-filling and overtime costs. Studies indicate that, on average, it takes one to two years for a new hire to meet the productivity of a former employee.
What are the common causes of staff turnover?
Employee-initiated turnover (or pull) is where staff voluntarily leave for better employment opportunities, while involuntary turnover (or push) stems from factors such as retirement, poor work environment, work/life conflicts, redundancies or dismissal, which are actions that also result in replacement.
Employers have limited options where pull factors are in play – although ensuring salaries, benefits and opportunities for advancement are competitive with market conditions is critical. With the push factors, employers need to develop strategies that address workplace bullying, intimidation or harassment; foster mentoring, coaching, training and career path programs; ensure acceptable workloads; implement merit-based recognition programs; and ensure flexible hours can accommodate personal issues.
What is an acceptable staff turnover rate?
Excluding an analysis of part-time and seasonal workers, the basic formula for calculating the turnover rates is:
# of employees departed in a period / average number of employees on payroll X 100
example: 75 / 600 X 100 = 12.5% turnover rate
The Canadian-based Society for Human Resources Management estimates that the annual turnover rate of a business is approximately 15% per year. The best organizations experience only a 4% turnover rate, but the analysis must be context-specific. Canadian retailing can run at a 20% turnover rate, the costs of which must be borne by increasing the price of goods and services. In an article by Nicola Middlemiss, the fast food industry turnover rate can over 100%, which explains why McDonald’s Canada is justly proud of their 45% turnover rate.
Let’s focus on the broader public sector for a moment. The turnover rate at St. Joseph’s Hospital, Hamilton, has reportedly been running at 8.34%, and neighbouring London Health Sciences was stated by some sources to be 7%. These are exceptionally low but will still result in hundreds of people a year onboarding to fill openings. If we consider that US hospitals are running at closer to 19% turnover rates, the Ontario healthcare rates looks quite good.
What does staff turnover cost?
The cost of replacing entry level staff is generally 20–50% of an employee’s annual salary, and for mid-level professionals the cost is roughly 150%. When it comes to replacing senior management and executives, the cost can escalate to four times the annual salary. A 2015 report by Samantha McDuffee indicated that an entry-level employee making $10 per hour costs, on average, $5500 to replace.
Not all staff turnover, however, indicates there is a problem with the operation, and in some cases it can save money – at least in the short term. A poor performing entry-level individual who voluntarily leaves their position curtails further costs and disruption and allows the employer to move swiftly to fill the position with someone more suitable. Social enterprises see a higher turnover rate as a good sign, as normally part of their mission is to assist people facing employment barriers. Conversely, a high-performing long-term employee who generates strong sales revenues or is an effective manager, and who moves on to greener pastures, can represent a considerable loss extending for some time.
What can we do to reduce staff turnover?
The focus should be on the retention strategy. Employers have more options to affect the push factors. These can be summarized into the following areas:
- New hire orientation
- Creating a positive corporate culture
- Effective communications to and from staff
- Valuing diversity
If we concede that the lowest cost to replace an employee is $5500, and we know that in some of the best organizations there are 80 people per month to replace, the total is in excess of $5M per year! We can’t afford not to invest in and develop our social capital; the return on investment is there. Even a reduction in a turnover rate of 10% has a tremendous payback.
Soliciting feedback on a regular basis is a way of gauging employee satisfaction and benchmarking the retention rate, which provides transparency and accountability. To attract and retain new employees, have them work with your best staff, instill confidence in the integrity of the organization and its leaders, provide adequate opportunities for skills development and career advancement, and truly engage with their creative capacity. Work to uncover their strengths and passion and then surround them with opportunities to leverage those talents to benefit the organization as a whole.
Food for Thought:
Q: What if we train our staff and they leave?
A: What if we don’t train our staff and they stay?
And finally, let’s not forget to consider the turnover rate with your main suppliers. After all, you are paying a portion of these costs.
Larry has been in the supply chain management field as an author, manager, business trainer, academia, and consultant for many years. Larry has worked in both the private and public sectors. Recently he has been co-facilitating NECI eSeminars, classroom sessions, and online modules. His new book, Good Planets are Hard to Buy is now available on Amazon.com.
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