Exploring The Cost Of Employee Attrition For Businesses
Employee attrition refers to the phenomenon of employees leaving their companies for reasons ranging from voluntary resignation or retirement to company-initiated termination. What sets employee attrition apart from employee turnover is that it leads to a reduction in workforce size. This is due to the fact that, unlike employee turnover, where exits are counterbalanced with new hires, employee attrition signifies that positions are left vacant for a very long time or are entirely eliminated. This basic distinction is essential because it not only affects the way companies operate but also makes the consequences of employee attrition much graver. But what is the real cost of employee attrition, and how can you quantify it? Read on to explore 5 of the most important consequences employee attrition can bring to your organization.
5 Significant Consequences Of Employee Attrition
1. Decreased Productivity
Losing an employee, especially out of the blue, can significantly affect your company's ability to maintain its productivity and efficiency levels. The sudden departure of a skilled worker results in the loss of valuable knowledge, disrupts the workflow, and may affect the dynamics among remaining team members as their workload suddenly increases to cover the gap. At the same time, valuable time will have to be invested in recruiting a new employee, further tearing away the attention of leadership and staff from the critical task of finding a new balance. As a result, if your company is operating with limited resources, the timeline for finding a replacement is more likely to last longer since maintaining a recruitment strategy is not a top priority.
2. Employee Burnout
Since the main characteristic of employee attrition is that any position that's left vacant takes a long time to be refilled, the schedules of remaining staff members stay busy for an equal amount of time. This can negatively impact employee morale and engagement, as employees are forced to take on new responsibilities for which they may not even be trained. The longer this situation continues, the more frustrated employees become, often resulting in missed workdays and decreased productivity. To put this into numbers, Gallup has estimated that a disengaged employee can cost their company up to 34% of their annual salary over the span of a year. That is a significant cost that can only increase when employee attrition is not addressed effectively.
3. Loss Of Internal Knowledge
The real cost of employee attrition often extends beyond the expenses associated with hiring a replacement, although these costs are significant as well. Companies primarily suffer from the loss of internal or "tribal" knowledge. This term encompasses the informal information, skills, and knowledge that are essential for successfully carrying out the responsibilities of a specific role. Research indicates that 42% of this expertise is known only to the individual currently holding that position. Most worryingly, this knowledge is often undocumented, even in well-organized companies, as employees acquire it gradually and share it mostly verbally. As a result, when an employee departs, they take with them this wealth of information, leaving the business in the difficult, if not impossible, position of rebuilding it from scratch to achieve satisfactory results.
4. Resources Related To Hiring A Replacement
As we mentioned earlier, a key characteristic of employee attrition is that vacant positions often remain unfilled. However, this doesn't happen because businesses don't want to find a replacement, but rather due to challenges related to finding the right talent, posting inadequate job descriptions, or having limited time for recruitment efforts. Consequently, the hiring process is prolonged, making up a large portion of the cost of employee attrition. It is estimated that replacing an employee can cost anywhere from 50% to 400% of their annual salary, depending on their level and overall productivity. For example, replacing an employee with a salary of $60,000 can cost between $30,000 and $150,000. These costs can easily add up when you consider recruitment agency fees, job ads, the hours managers dedicate to recruitment, and lost revenue following a drop in productivity.
5. Training And Mishire Costs
If you do manage to get out of the long recruitment and hiring process, your work and the costs brought by high employee attrition rates are not over. Now you have a new employee who needs to be onboarded in their new work environment and trained to excel in their new role. The tasks associated with these processes are expensive and lengthy, requiring a significant time commitment from both management and current employees. Something you can't ignore is the additional risk of making poor hiring decisions, especially when there is increased pressure to fill a role quickly in order to restore the company's workflow. In this case, you will find yourself in the particularly unfortunate position of having to repeat these steps, multiplying the expenses we just mentioned.
Conclusion
Employee attrition is a problem that businesses must keep track of to gauge their ability to not only retain current employees but also successfully replace those who leave either of their own volition or not. While losing a few employees is natural and shouldn't worry you, high attrition rates can point to a declining workforce and a business that is losing the resources it needs to grow and adapt to the evolving needs of the market. Paying attention to this metric will help you gain insight into the real cost of employee attrition and take the necessary steps to prevent its negative effects on your organization's productivity, efficiency, employee morale, and overall profitability.
