The Cost of Employee Turnover is Accelerating

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 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 is partly controlled by the employer through managing employee turnover.

 

Consider the following:

Employers incur on a per-employee basis 6% FUTA rate up to $7,000 of annual wages plus on average 4% SUTA up to an average annual wage of $19,000 (each state has different rates and wage caps; this example uses an average of the 50 states) plus 7.65% of FICA taxes uncapped for employers. Every time an employee leaves, those taxes reset when you hire a new employee. Granted, the employer portion of FICA taxes would continue regardless, so we will focus on the FUTA and SUTA taxes for our purposes here. The cost of those two payroll taxes is approximately $1,200 per employee, assuming each departed employee earned wages equal to the caps of $7K and $19K, respectively. So on top of the turnover costs mentioned earlier, add another $1,200 to the turnover cost. Depending on the size of your company and actual turnover count, that can be a sizable amount all hiding in plain sight on your P&L, and all of it can be minimized by reducing employee turnover.

Some job boards may entice you with the promise of sending your hiring managers 1,000 applicants overnight. And, Indeed, while they may actually meet this promise, it’s highly unlikely that your local managers will be able 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 will keep you in an infinite loop of high turnover and a continuously escalating cost of employee turnover.

High-Volumes of Job Candidate Applications

Conclusion

Every employer needs the tools to efficiently and confidently hire the best applicant the first time without worrying about having a backlog of  999 other applicants waiting as a replacement. The solution is changing your recruitment spend to higher-value solutions such as Cadient Talent Employee Referral (Text2Refer) and Decision Point to help your hiring managers find the best candidate the first time, increase employee tenure, and reduce turnover cost.

 

Learn more about the impacts of high turnover on your organization in this article: The Real Cost of Employee Turnover.

 

Bob Cotton

CFO