Employee turnover exists at most organizations — whether they’re big, small, public, or private — and the type of turnover can be a combination of involuntary or voluntary, healthy or unhealthy. Reducing employee turnover requires management to analyze the root causes of turnover, which can vary dramatically based on circumstance. However, many companies don’t go through that introspective process, and, as a result, continue to deal with the cost of employee turnover, year after year. Many companies don’t know how much employee turnover costs them. If they did know, they would take a much more assertive approach in reducing turnover.
Employee turnover has a quantifiable impact in many ways, including the time it takes to rehire and train, customer disruption, paying overtime to existing employees, the potential to have more workers’ compensation and unemployment claims, and lower employee morale. The time to rehire and train can be the most costly, taking several weeks if not months of time, depending on how specialized the role is to fill — time that would otherwise be spent on core parts of the business. For instance, many HVACR companies will have a supervisor conduct field training that takes away from other areas of the business such as sales and client management.
Tight job markets can also increase the time needed to fill an open position. A big challenge of the HVACR industry is cultivating the next generation of technicians so HVACR companies can grow and easily find talented employees. The best practice for employers is to have a bench of highly qualified talent that has been sourced over the years (maybe from trade schools) so when an open position comes up, the employer can ideally find a great employee from a prescreened talent pool. Of course, building this talent bench takes consistent focus and attention, and, if the employer does not have this, the act of placing job ads and screening countless rèsumès can result in a time-intensive search for a replacement who has not been screened or interviewed.
In addition to rehiring and training, employers need to clearly communicate the new hire’s role to any impacted clients and vendors. In-person communication is the best approach; however, personalized calls and emails may suffice, given time restrictions. If not handled appropriately, customers may get frustrated, which can lead to client attrition in a worst-case scenario.
However, a potential pitfall can become a positive opportunity, provided the company has done a great job of communicating the employee change. Taking a close look at what a company’s client retention has been at low and high levels of employee turnover would be another way to quantify the cost of employee turnover.
The cost of paying overtime can also add up quickly when considering the total cost. When a key technician leaves, the employer needs to fill that service gap immediately and, sometimes, hiring another employee is not a realistic solution. As a result, existing employees tend to work more hours to ensure the established service level is not interrupted. For example, if you have four technicians each earning $20 an hour working 10 hours of overtime a week for a four-week period until a new technician is hired, that’s an additional $1,600 cost in one month. Consider the cost for a few months or even a year.
WORKERS’ COMPENSATION AND UNEMPLOYMENT
Two other areas that have a hard-cost impact associated with employee turnover are workers’ compensation and unemployment. Statistics show a good portion of workers’ compensation claims are due to new employees who have been on the job for less than 90 days and have not been adequately trained in safety procedures. Therefore, a positive correlation exists between a high employee turnover rate and a high workers’ compensation claim frequency, which can drive a company’s workers’ compensation costs through an increased experience modifier. Assume your 30 employees earn total wages of $1.5 million. A 10 percent increase in an experience modifier can increase your workers’ comp costs by about $6,000 (assuming a rate increase from 3.62 percent to 4 percent). The same holds true for unemployment claims. As employee turnover increases, so does the company’s State Unemployment Tax Act (SUTA) rate. For example: For 30 employees in the state of Texas, an increase in SUTA from 2.7 percent to 4 percent would result in at least $3,500 in additional cost.
Lastly, employee turnover can have a negative impact on employee morale. While the details of an employee termination may tend to be shared among remaining employees, in many cases, there can also be some confusion as to why that employee left the company. Perceived lack of information and transparency can unnerve employees and generate greater uncertainty. The risk is that an employer would then deal with a turnover cycle — the impact of which would multiply each time an employee left the organization.
The good news is that this can all be solved by taking a thorough, analytical approach to understanding the reasons causing turnover. Here are some tips to follow.
• Conduct Exit Interviews — When an employee leaves a company, it should be viewed as a learning opportunity. It’s a way to obtain raw, unfiltered feedback from the departing employee about any issues, concerns, or reasons driving that person’s decision. Exit interviews should be a standard process that every company follows. The interview should be conducted in person by HR or a professional employer organization (PEO) if the company uses one.
• Review the Data — If the company operates across multiple states, departments, and locations, tracking employee turnover can be quite a burden. Companies should use a Human Resource Information System (HRIS) platform or a professional employer organization (PEO) that can produce employee turnover reports on a regular basis. Analyzing turnover by location, department, and state can tell a story and pinpoint where the issues lie.
• Get it Right the First Time — Hiring the right people would significantly reduce involuntary employee turnover. Ask yourself these questions about your top-tier technicians: Where did you find them? What are the attributes that make them successful? How can you measure those attributes during the interview process? What do they like most about working for your company? Use these answers to refine your interview and selection process. One simple way to improve the quality of your candidate pool would be to establish an employee referral program that rewards employees for referring new hires to the company.
• Frequent Employee Communication and Action — On a more pro-active basis, supervisors should meet with employees to discuss their career goals, feedback, and other important items. The key is that having these conversations is only part of what needs to happen. It’s also critical that supervisors take clear and timely action based on relevant feedback. This will inspire trust and generate a true connection between employees and the company. For many companies, using a PEO to facilitate clear communication between employees and management is a good idea.
Publication date: 8/24/2015