You have probably heard various estimates of what it costs a business to transition a new employee into a new role, and the horror stories of the increased costs of losing staff shortly after.
New research undertaken by the US-based leadership training company VitalSmarts took into account the time it took to learn the relevant skills for the job role, manage its demands, understand the ins and the outs of the company, traverse the corporate culture, and become “fully proficient”. This, paired with the salary costs during the transition period and other opportunity costs led to some surprising findings: Employees entering the workforce for the first time had a transition period of 5-6 months and that transition cost their organisation $US18,000; Employees taking their first people-management position had a transition period of 6-7 months at a cost to their firm of $US25,000; Experienced, non-supervisory external hires needed 4-5 months of transition time at a cost of $US$16,000; and Experienced, non-supervisory employees, hired internally had a transition period of 3-4 months at a cost of $US11,000.
Australian data provided by the Australian Bureau of statistics estimated that over one million Australian employees changes employers in the year leading up to February 2018, with two-thirds of those employees leaving voluntarily. Turnover rates were particularly high in the hospitality (16%), administrative services (12.3%) and IT, media and telecoms (11.9%) industries. Adding to this, recruitment company Hays recently found that 33% of Australian companies had reported increased turnover rates in the last year, and that 44% of Australian employees were planning to look for a new job in the next year. Click here to read more of the Hays report.
So how do you determine if your turnover rate is too high? The Australian Human Resource Institute (AHRI) published a study in 2018 based on a survey of HR Professionals with two thirds citing 1-10% as the “ideal turnover rate for their organisation” and the remainder taking the view that rates closer to 20% were acceptable.
Keep in mind too that a growing body of evidence identifies that when it comes to employee retention, the quality of leadership carries significant weight. As stated by AHRI CEO, Lyn Goodear, “When it comes to employee retention, leadership quality matters according to respondents, 70% of whom identified effective management and leadership as the most effective method for employee retention”.
The following simple to use resource, developed by the Victorian government, can provide you with an idea of the cost to your organisation of labour turnover. Give it a look – you may very well find yourself shocked at the results.
https://www.business.vic.gov.au/hiring-and-managing-staff/staff-management/calculator-staff-turnover
Dr Peter Williams, Senior Lecturer, Avondale Business School