Part 1
Employee turnover is an unfortunate and expensive challenge for organizations of all sizes. However, it can be a death knell for small nonprofit agencies working on shoe string budgets pieced together from grants and fundraising efforts.
While the immediate financial impact of replacing an employee is often apparent, the full extent of turnover cost goes beyond directly paying for unused vacation days, cost to recruit new talent, cost to hire new talent, cost to onboard new talent, etc...
Indirect costs like lost productivity, reduced team morale, reduced team performance, and possibly some public relations costs are all potential long-term financial consequences that small agencies simply cannot afford. Understanding these costs and how to avoid them is essential for agencies looking to minimize the negative impact of turnover and retain their people.
Separation Costs
When an employee leaves, there are direct separation costs that must be managed.
Severance Pay: Some agencies may provide severance packages to employees who are laid off or leave under specific conditions. This payout can vary depending on the employee's time of service, position, and agency policy.
Continued Benefits: Some organizations extend health insurance and other benefits to former employees for a certain period post-termination, often required by law or offered as part of a severance agreement. We all know how expensive healthcare coverage is.
Administrative Costs: The processing of paperwork and administrative tasks related to termination, including final payroll, exit interviews, and documentation, can be time-consuming and require HR and management resources.
Unemployment Insurance Claims: Depending on the circumstances of the termination, the agency may face unemployment insurance claims, which can increase premiums and be an ongoing financial burden.
Recruitment Costs
Replacing an employee comes with its own set of costs, particularly in the recruitment process.
Job Advertising Fees: Posting job listings on multiple platforms can quickly add up, especially for specialized positions.
Recruiter Fees: Some agencies may use external recruiters. These can be expensive, namely if hiring for high-level positions.
Time Spent Reviewing Resumes and Interviewing: HR and hiring managers will spend many hours reviewing applications, conducting interviews, and vetting candidates. This all adds up quickly when we’re talking about hourly employees.
Pre-employment Screenings and Assessments: Background checks, skills assessments, and pre-employment testing can also be costly.
Training and Onboarding Costs
Once a new employee is hired, the process of onboarding and training begins. This involves direct costs.
Employee Orientation: Organizing and conducting orientation sessions to familiarize new hires with agency policies, culture, and processes.
Job-specific Training: Depending on the role, specialized training may be required, which can be costly in terms of materials, resources, and time.
Training Materials and Resources: Investments in training tools, manuals, and software to help new employees get up to speed.
Time Spent by Managers and Coworkers Training New Hires: While new employees learn the ropes, their colleagues and supervisors must dedicate time to train and mentor them.
Indirect Costs
Beyond the direct expenses of recruitment and training, indirect costs are also associated with employee turnover.
Lost Productivity
Reduced Output: While the position remains unfilled, the workload is either left undone or redistributed, leading to a decline in overall productivity.
Lower Productivity of New Employees: Even after a new hire is in place, it takes significant time to reach the productivity level of the employee they replaced.
Time Spent by Other Employees Covering the Vacant Position: Existing staff may need to take on additional duties, which can result in overwork and decreased efficiency in their primary roles.
Potential Overtime Costs for Remaining Staff: To keep up with the workload, agencies may need to pay overtime adding to the financial strain.
Knowledge Loss
Loss of Institutional Knowledge and Expertise: Long-term employees hold valuable institutional knowledge that can be difficult to replace. When they leave, their insights and experience go with them.
Time Spent Transferring Knowledge to New Employees: It takes time to transfer knowledge and train new employees on the nuances of their roles.
Potential Loss of Client Relationships: If the departing employee had strong relationships with clients, their exit could jeopardize connections.
Impact on Team Morale and Culture
Decreased Engagement of Remaining Employees: Frequent turnover can lead to disengagement among remaining employees who may feel uncertain about their own job security or be disheartened by the constant changes.
Increased Workload and Stress on Team Members: With fewer team members, those who remain often face heavier workloads. This can lead to even more burnout or be “turnover contagion”.
Customer Service and Quality Issues
Potential Errors or Quality Issues with New, Less Experienced Staff: New employees often make more mistakes as they acclimate to their roles which can affect the quality of the agency’s products or services. This is not a knock on the new employee, learning curves take time.
Dissatisfaction Due to Service Disruptions: If client-facing roles are affected by turnover, service disruptions or inconsistencies can lead to dissatisfaction and potential loss of clients or bad reviews from remaining clients and/or partners.
Financial Impact
The total cost of employee turnover can be a huge loss. Depending on the role and level of specialization, the cost of replacing an employee can range from 50% to as much as 400% of their annual salary. For example:
Entry-level employees: Turnover costs around 30-50% of their salary.
Mid-level employees: Costs can soar to 150% of their salary.
High-level or specialized employees: The cost of replacing such employees can reach 400% of their annual salary.
In part 2 of we’ll look at and discuss mitigation strategies to hold on to your employees. It’s not always just about compensation, although that’s certainly part of it. There are multiple reasons that people choose to stay at certain agencies and leave others.
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