80% Employee Turnover Is Caused by Bad Hiring Decision, Here Are The 5 Costs Suffered by The Company
One of the challenges in the business world is employee turnover. The turnover rate in a company is considered to be high if it reaches more than 10% in a year. The potential costs suffered by the company due to high turnover rate can be seen in both tangible and intangible aspects that result in negative impact on the future companies’ performances. What are the potential costs?
- Recruitment costs
This loss can clearly be calculated. Recruitment costs are the costs required ranging from seeking to recruit candidates, including the cost of job ads, screening, and interviews.
- Onboarding costs
Employee onboarding is not free and often expensive. Not to mention the energy and time allocated by other employees to monitor the course of training and mentorship will cause a loss in the company’s productivity. Losing a new employee at this stage adds more cost for the company.
- A missing opportunity
Opportunity cost is the cost of the project or the opportunity lost because the company does not have enough human resources to take the opportunity. For example, a company cannot be present in a trade expo due to lack of employees or unpicked sales calls from potential customers due to nobody was there to answer it. The costs of these lost opportunities may be difficult to measure, but they are real.
- Decreased productivity
High turnover triggers a disruption of the remaining employees’ focus resulting in decreased productivity. In addition, new employee productivity is also a problem. According to business expert, Josh Bersin, of Bersin by Deloitte, a new employee takes up to two years to reach the same level of productivity as the existing employee.
- Moral impact
High turnover rates have a negative impact on the morale of existing employees. The more employees who resigned, the more existing employees who will be left restless, unenthusiastic and encouraged to look for better opportunities out there. If the declining employee morale affects down to the corporate culture, it will be difficult for the company to attract good talents.
The above are costs that a company must incur for new employees or called turnover costs. According to ERE Media, turnover costs can be nominated based on employee level. The company should spend on average 30-50% of the annual salary of an entry-level employee, 150% of a mid-level employee’s annual salary, and up to 400% of the senior employee’s senior salary.
Let us say, a company loses 4 entry-level employees with a yearly salary of 48 million rupiahs each. If the theory is implemented using a minimum percentage of 30%, then the company must spend approximately a turnover cost of 57.6 million to get new employees.
Based on Harvard Business Review data, bad hiring decision causes 80% employee turnover. Therefore, the process of hiring – screening, background checking, and interview – becomes a critical stage. This process is expensive in terms of time and cost. However, it is better to invest capital to select the right candidate rather than to suffer more losses later on.