Cost of employee turnover
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Do you know what the costs are of replacing employees? Your company should know the costs of replacing employees and of training the new ones, because it is a hidden cost that can often effect profits.
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Cost of employee turnover
- 1. Besides the outright costs of employee turnover, there are indirect costs associated with employee loss: • Increased unemployment insurance costs • Lost productivity while there is a vacancy • Time costs for the separation (Exit) interview (If your good employees are leaving, you NEED to know why) • Separation agreement costs (legal, financial, medical, retirement cash-out, etc.) • Overtime from other employees to handle the vacancy (which can lead to burn-out or absenteeism) • Time costs to review resumes • Time costs to interview candidates • Interview expenses for the candidates • Possible travel expenses • Possible relocation expenses • Head-hunter or signing bonus fees • Additional bookkeeping; payroll, 401k, etc. • Additional record keeping for government agencies • Reduced productivity while the new worker gets up to speed • Training programs • Corporate history lost • Morale can be affected • Intellectual property lost
- 3. With the thought of taking from your operating budget to spend on staff training initiatives, it's understandable if you consider employee development an expense. Yet because the benefits of training are so numerous, it's much more beneficial to consider training as an investment in human resources. The right staff training program can increase productivity, decrease the need for supervision, reduce absenteeism, improve customer service, lower the number of complaints, and boost sales. Well-informed employees make fewer mistakes and are more effective in dealing with your customers. And because employees will feel valued and appreciated, training can also increase the commitment and personal confidence that your staff feel in their jobs. This helps to create an appealing work environment and will help minimize staff turnover. If you choose your training wisely, it's clear your dollars will be well-spent. What Does It Cost? The cost of your training program will depend on the type of training you require. Many different types of training exist, each varying widely in cost. Before you choose one, know what results you are after. Then, select the training activities that best fit those results and your budget. Training Type Relative Cost On-the-job coaching and mentoring $ Self-directed study $ Video presentations $ Job shadowing $ Satellite distance learning (e-learning) $$ Seminars $$ One-to-one tutoring $$ College courses $$$ Group workshops (external) $$$ Consultant training (in-house) $$-$$$ Legend: $ - Least Expensive, $$ - More Expensive, $$$ - Most Expensive Creating a Training Budget Budgeting for training does not mean using surplus money when it’s available. Instead, you should build a separate line item for training into your yearly budget. A training budget should include the following costs: Initial communication about the training program Training delivery (e.g. classes, video tutorials, e-learning, course fees) Training materials (workbooks, videos) Staff time (including replacement time) Instructor fee Travel, lodging or meal expenses required to participate
- 4. Ongoing training (upkeep) Contingencies Managing the Budget Once approved, your training budget will need careful management to ensure that costs stay on track. Unforeseen events can lead to changing costs. A specially trained staff member might unexpectedly leave the company before their knowledge is passed on to others. Training costs will increase if you need to rely on external resources. How Much to Spend? Many large organizations commit to investing anywhere from two to five percent of salary budgets back into training. While that may not be realistic for you, it's important to find a number you feel your budget can absorb. Base the figure you'll use on your needs analysis. You may be tempted to use the least expensive trainers or training materials available. Often, using "b" level resources produces "b" results. Increase the likelihood of success by always striving for A's. Use the best caliber training you can afford. Ways to Save Depending on the size of your staff, you may find training costs add up quickly. Here are some ways you can save on costs: Group training: earn volume discounts by training numerous employees at once (sometimes as few as three participants will qualify) Re-use materials: training materials such as videos have a long shelf life and may be used repeatedly Teach one, teach all: spend on off-site training for one employee, but have him or her present their knowledge to remaining staff E-learning: electronic options are cheaper than traditional, instructor-led training Another tip is to negotiate free or reduced-cost training from your vendors, who will be happy to help you if it means their product will be successful. Remember, the right training program will save you money in the long run. Securing Commitment Don't forget that employee commitment is necessary for training to succeed. One way to ensure employees take the effort seriously is to have those getting specialized training to share the cost. Employees who have made a personal investment in learning will be more focused on completing the task.
- 5. If you are footing the bill, get employees to commit to working for you for a specified period of time following the training's completion. Let them know you will require reimbursement if they aren't able to fulfill the agreement. It is also important to have full support for training efforts from senior people in your organization. If they understand the long-term value of employee development, they should be able to help by earmarking funds for training. You can learn more about the costs of employee turnover here