The Australian job market continues to become ever tougher for employers, with the unemployment rate falling to 3.4% in October 2022, equal to the record low. When coupled with current high employee turnover rates, it’s clear that having an effective employee retention strategy – especially for key staff – is a vital part of workforce management, and can help to reduce employee turnover costs for your business.
Current employee turnover rates
According to the ABS, 1.3 million people (9.5% of the workforce) changed jobs in the year ending February 2022. Professionals accounted for 22% of people changing jobs. Overall, this was the highest rate of job mobility since 2012.
Rising cost of hiring employees
The financial cost of hiring a replacement when someone leaves continues to grow. Many businesses don’t have a full picture of replacement costs. When all the different elements of staff replacement are considered, the end result can come as a very big shock.
Human Resources Director Magazine reports that the average cost of hiring has increased from $10,000 to $23,000 per candidate in the past year, with some companies paying as much as $40,000. But this is likely to include only the direct costs of recruiting, not the indirect ones. The true cost of replacing an employee, as reported by the Australian HR Institute, is closer to 1.5 times their annual salary.
Direct and indirect costs of high employee turnover
It’s easy to assume that the cost of replacing employees includes only the obvious, direct costs. But, the indirect financial cost often amounts to a much higher sum.
Three direct employee replacement costs
- Advertising a vacancy on sites such as Seek, Indeed or LinkedIn.
- Subscription costs for recruitment software for posting jobs and screening candidates.
- Outsourcing hiring to a recruitment agency.
Ten indirect employee replacement costs
- Time spent on exit interviews for departing staff.
- Knowledge, skills, experience, intellectual property and customer relationships departing with key or long-term employees.
- Time spent by hiring managers and business owners on reading and screening resumes, interviewing candidates, checking references.
- Lost productivity when other employees need to cover roles which may take weeks or even months to replace.
- Burnout from overwork and stress in staff trying to cover vacant roles as well as their own.
- Declining employee engagement and negative effect on company culture and morale due to high staff turnover.
- Cost of onboarding and training new staff.
- Upward salary creep and additional benefits offered to attract new employees.
- Increasing prevalence of sign-up bonuses to attract new employees, as reported in the Australian Financial Review.
- Hiring a culturally unsuitable or underqualified employee – who has to be replaced once again – in the rush or desperation to fill a role.
How to save money with a proactive employee retention strategy
The most effective way to reduce the significant financial cost of high employee turnover is to have a customised employee retention – or workforce management – strategy for retaining the valuable employees you already have. In order to do this, you need to understand the factors that drive people to leave – and also those that motivate your current employees to stay, and that attract new candidates. These positive factors are the foundation for your Employee Value Proposition (EVP) – which is the magnet that attracts employees to your business, and keeps them there.
Most common reasons employees leave
The Australian HR Institute quotes the following common ‘push’ factors for why employees leave:
- A poor relationship with their direct manager
- Lack of development opportunities
- Lack of appreciation
- Lack of support
- Lack of meaningful and challenging work
- Inadequate compensation
- Toxic workplace culture
The ability to work from home at least some of the time should probably be added to this list, since ‘work from home’ has been the most popular search term on Seek for months, as reported in the Sydney Morning Herald.
Clearly, if any of these points regularly crop up in your exit interviews – they need to be addressed as a priority to ensure that your workforce management strategy is effective and sustainable.
Key elements of a successful employee retention strategy
In order to retain employees, boost productivity and reduce the huge direct and indirect costs of employee turnover, create a workforce management strategy with the following elements:
- Competitive salary package, possibly including bonuses and profit-share schemes and other benefits, regularly reviewed to make sure current employees are compensated in line with the standards in your industry.
- Work-life balance, with a focus on support and training for mental, physical and financial health
- Employee experience of a positive company culture, including effective and empathetic leadership, opportunities for successful teamwork, good relationships with co-workers and a company policy of diversity and inclusion.
- Flexibility in working hours and locations, including opportunities to work from home, some autonomy in deciding working hours and good technical support to make it happen.
- Training and career development, which may involve on-the-job learning and more structured upskilling, a formal progression path for individuals, mentoring and coaching.
- Company values and brand, where employees feel they can align with the organisation’s mission and affiliations, particularly in regards to social responsibility.
Spend on retention, not replacement
Although having a successful retention strategy may come with a price tag, it will almost certainly work out to be far less expensive than the steep financial cost of a high rate of employee turnover.
Want to discuss how a workforce management strategy can strengthen your business, and help to reduce the costs that come with high employee turnover? Make a time for a chat with a Bentleys business advisor.
Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.