The true, crippling costs of employee turnover

Foo Mao Gen, from Qualtrics, explains why business leaders should look to improve retention and engagement rates.
By: | September 20, 2018


Employee turnover is often costly and plagues every organisation. But employees are at the heart of any organisation, and so improving employee retention should be a top priority for any company.

Successful and forward-thinking organisations build their companies around the premise that superior employee experience drives better business outcomes.

To develop a holistic employee experience strategy, companies simply need to listen to employees to truly understand what factors are driving them to leave or stay.

For instance, Qualtrics’ Asia Pacific Employee Pulse Study found that long working hours do not necessarily contribute to high employee turnover rates, as opposed to popular beliefs.

Employees who feel heard are far more motivated and engaged at work and thus, far less likely to leave.


The true cost of employee turnover

The US Department of Labour estimated that it costs about 33% of a new recruit’s salary to replace an employee who left their job.

In other words, it could cost up to $11,000 in direct training expenses and lost productivity to replace an experienced employee earning an annual salary of $33,000.

For highly-skilled jobs at much higher levels, costs may be driven up to 150% of the position’s annual salary.

In addition to the calculable cost of salary, attrition also encompasses the opportunity cost of what employees leaving the organisation did not achieve – according to the Singapore Human Resources Institute (SHRI), 57% of Singapore companies believe that employee turnover has a serious negative effect on organisational performance.

A fellow colleague’s departure often results in decreased morale among current employees as they are forced to take over their work until the new recruit is fully on board.


Five key phases in an employee life cycle

Employee engagement is not a one-time affair. To improve employee retention, employee sentiment should be measured continuously throughout the employee life cycle.

This can be broken down into the following key areas: hiring, on-boarding, management, development, and culture.


1. Hiring

With 88% of Singaporean firms increasing headcount or replacing staff who leave, according to a 2018 Hudson survey, it is important for HR leaders to understand the importance of finding the right hire which may take significant time and investment to find.

Hiring managers should commit to searching for the person they believe will have the most mutually beneficial and long-term relationship with the company rather than settling for the first person that meets the minimum qualifications.

An employee is an investment and should be treated as such. Filling the immediate needs of the business should not be the end goal, but instead to recruit new talent that will contribute to building and growing the organisation.


2. Onboarding

Onboarding is an often-overlooked, yet critical, step in the employee lifecycle.

The Society for Human Resource Management (SHRM) indicated that over 69% of employees are more likely to stay at their newly joined company for at least three years if they receive a great onboarding experience.

Failure to do so, on the other hand, leads to the withdrawal of potentially good employees due to confusion, the feeling of being alienated and lack of confidence.


3. Management, Development and Culture

The last areas – management, development, and culture – go hand in hand in lowering unwanted attrition amongst employees.

The top three job unhappiness factors among Singaporeans are issues with the management and leadership team, a lack of career development and training opportunities, according to Jobstreet’s Job Happiness Index 2017.

Positive management and culture help to foster employer branding and in turn, allowing HR and business leaders to better attract prospective talent and retain current employees.

Focusing on the five key touchpoints across the employee experience journey (hiring, onboarding, management, development, and culture) will help cement and strengthen relationships with current and future employees.

Creating a conducive workplace will not only motivate employees to stay with their job, but also lower costly attrition rates and possibly absenteeism where an employee frequently skips work intentionally.

Foo Mao Gen is the Head of Southeast Asia at Qualtrics.