There is a saying that only two things are guaranteed in life – death and taxes; well, we would like to add a third: employee turnover. Now more than ever, we know how critical it is to recruit, hire and retain not only quality employees but the best employees.
Yet, as we struggle through this latest pandemic fed business cycle, employee turnover is increasing at rapid rates—and it’s expensive. It’s creating huge roadblocks and challenges for organizations to not only recruit and hire quality talent but to retain them.
The Real Cost of Employee Turnover
Numerous articles have been written, and many consultants have tried to quantify the true cost of employee turnover over the years. The sum of costs includes items such as:
- Loss of productivity
- Loss of sales
- Supply chain delays
- Loss of knowledge
- Increased overtime to cover workloads and shifts
- Training costs
- Hiring and recruitment solution expenses
- Talent acquisition costs
Some of these are more quantifiable than others, but all of them can be quantified, and all are considered an expense to the company.
While all of these will in some way impact your P&L, there is another cost that is hiding in plain sight. All P&L managers see it every month; however, they dismiss it because it’s one of those two guarantees in life – taxes.
An Obvious Cost of Turnover: Employment Taxes
Through all the attempts to dissect turnover cost, the resulting “formula” glosses over the obvious. Every employer pays taxes for every employee in the form of federal/state unemployment taxes and the employer’s share of payroll income tax. Commonly known as FUTA, SUTA, and FICA, employers are burdened with these taxes, conveniently rolled into this notion of a burden rate. P&L Managers likely know the burden rate and, for the most part, just accept it as reality. There is truth in that statement; however, how frequently and how much tax an employer pays are partly controlled by the employer through managing employee turnover.
Consider the following:
Employers face various payroll taxes on a per-employee basis. These include a 6% FUTA rate on up to $7,000 of annual wages, an average 4% SUTA rate on up to $19,000 of annual wages, and 7.65% of FICA taxes, which have no cap. When an employee leaves, these taxes reset upon hiring a replacement. The employer’s portion of FICA taxes continues continuously. For the FUTA and SUTA taxes, the cost is approximately $1,200 per employee, assuming the departed employee earned wages reaching the respective caps. Thus, on top of turnover costs, an additional $1,200 is incurred. Minimizing employee turnover can significantly reduce costs on the P&L statement.
Some job boards may entice you by promising to send your hiring managers 1,000 applicants overnight. However, your local managers are unlikely to review 1,000 applicants and identify the best candidates with the longest expected tenure.
Flooding your organization with applicants is not the answer to your turnover problem. With too many applications to review, your hiring managers will keep hiring candidates from the top of the applicant stack. Most of those candidates will have low tenure rates. This inefficient process results in high turnover and escalating costs.
Conclusion
Every employer needs the tools to efficiently hire the best applicant without worrying about a backlog of other applicants waiting. The solution is changing your recruitment spend to higher-value solutions such as Cadient Talent Employee Referral (Text2Refer) and Decision Point. Our solutions help your hiring managers find the best candidates, increase employee tenure, and reduce turnover costs.
Learn more about the impacts of high turnover on your organization in this article: The Real Cost of Employee Turnover.
Other Useful Resources
Applicant tracking system software
Applicant pool
Evergreen job posting
Recruitment in hospitality industry
