Whatever your business, a high turnover rate is never good news. Turnover is especially challenging in industries that rely heavily on hourly employees, such as retail, which we’ve written about in the past. A 2015 study suggested the annual turnover rate for hourly employees was 49% with an average cost of $4,969 per employee. However, these figures can vary broadly by industry and by business. For example, studies put the turnover rate for restaurant workers at 63% and hospitality employees at around 33%.
Given these high rates, it’s essential for employers to understand how the costs of employee turnover may be impacting your hourly business.
Quantifying the costs of turnover in the hourly industry
Identifying the costs associated with turnover is notoriously tricky. This is because while many of the costs will be direct costs (and therefore are measurable), the impact of indirect costs will have an ongoing effect on your bottom line. Direct costs can include:
- Separation costs (such as severance)
- Costs of covering duties, such as overtime paid to remaining staff
- Recruitment costs
- Training costs
Indirect costs may include:
- Loss of morale among remaining staff
- Lost productivity while the role is vacant
- Loss of institutional knowledge and expertise
Many studies of the cost of turnover focus only on direct costs, which can mask the expensive nature of replacing staff. Estimates are sometimes expressed as a percentage of an employee’s salary. For example, the Center for American Progress found that for high-turnover, low-paying jobs, it cost 16% of an employee’s annual income to replace them. For an employee making $30,000 a year, this would translate into a cost of $4,800.
However, a study commissioned jointly by HR Associations representing professionals in Western Canada (BC, Yukon, Saskatchewan, Alberta, and Manitoba) reported much higher costs. Respondents reported the average costs of replacing one employee as follows:
- All industries: $16,000
- Retail: $12,350
- Hospitality: $10,650
- Manufacturing: $17,130
Survey respondents also described the broader impacts of high turnover, which included increased hours for staff, delays in projects, and slower than expected growth.
These figures illustrate the potentially crippling cost of high turnover. Let’s say a retail business with 100 employees experiences a turnover rate of 65%. Using the more conservative estimate above, that business would face annual turnover costs of $312,000, but costs could escalate as high as $741,000. Suddenly, focusing on employee retention looks less like a “nice-to-have” and more like a “must-do”.
For a business with 100 employees:
*NB: These figures are based on the Center for American Progress estimates cited above for high-turnover, low-paying jobs. The figures are based on an assumption of an annual salary of $30,000.
Retention starts with recruitment
As experts in hourly recruitment, we know that the key to battling turnover begins with the hiring process itself. We use best practices and candidate profiles to match the right people to the right roles. We also help our clients manage the impacts of turnover to lower costs.
With our constant pipeline of high-quality candidates, we help customers fill positions more quickly and with confidence. To learn more about our solutions, contact one of our experts today.
Mindfield is a Recruitment Outsourcing solutions provider that partners with companies to create powerful hourly workforces. Our solutions combine a recruitment team, simple to use technology and a data-driven hiring strategy that promises to improve the quality of your hourly workforce. This approach focuses on tying business outcomes such as sales performance, tenure, and engagement to the selection, hiring and measurement of quality candidates.