Staff turnover costs – the secret profit destroyer
Fluctuation costs are not reported in annual financial statements and business analyses and are therefore not evident. In particular, the indirect costs of fluctuation either do not appear at all or are hidden in other cost items. Very few companies systematically calculate staff turnover costs. Management, controlling and HR departments still seem to underestimate the extent of these costs and that they are items that should definitely be measured and managed.
Examples:
1. Direct exit costs: Ø 2,145 € per case of fluctuation
The direct costs of leaving include, for example, the continued payment of remuneration in the event of a leave of absence, costs due to sick leave, post-contractual compensation, legal and court costs in the event of labor law disputes, severance pay and special costs.
2. Indirect exit costs: 2,122 Ø € per case of fluctuation
Time spent by those involved and their personnel costs. E.g. coordination meetings between HR and the line manager, exit interviews, informing colleagues / customers / suppliers etc., deregistration, safety measures, limiting compliance risks, preparing references, checking the return of items provided, planning and implementing the redistribution of tasks within the team and any overtime worked by remaining colleagues.
3. Direct search and selection costs: € 4,591 per fluctuation case
E.g. costs of job advertisements, personnel consultant costs, costs for correspondence, fees for selection procedures, costs for obtaining references, information material for applicants, reimbursement of expenses to applicants, search costs for interim personnel and costs for interim personnel.
4. Indirect search and selection costs: Ø 6,115 € per fluctuation case
Time spent by the internal employees involved, multiplied by the personnel costs, e.g. checking and, if necessary, reformulating job descriptions, drafting and placing job advertisements, sifting through and recording applications received, pre-selection, inviting applicants, preparing and carrying out selection procedures, coordinating with the works council or staff council, decision-making, writing interim notifications, drafting and sending rejections and acceptances and returning documents.
5. Direct entry costs: Ø 2,002 € per fluctuation case
E.g. higher salary of the new employee, costs for training and further education of the new employee, additional workplace during induction, information folder, participation in trips home, hotel costs, brokerage fees and relocation costs.
6. indirect entry costs: Ø 2,097 € per fluctuation case
Indirect entry costs are also calculated based on the time spent by those involved and their personnel costs. The time expenditure here arises, for example, from submitting and processing the recruitment application, recording master data, drawing up the employment contract and personnel file, handing over materials for starting work, carrying out various registrations, updating lists and directories, providing support in finding accommodation, carrying out a company medical examination, drawing up a plan for induction, setting up the workplace, carrying out internal training courses, accepting the performance of the new employee, carrying out onboarding, selecting a mentor, supporting the new employee and feedback meetings between HR and the line manager.
7. opportunity costs of fluctuation: Ø 16,819 € per case of fluctuation
The opportunity costs of leaving, the vacancy period and induction are the largest item in the fluctuation-related costs. They vary enormously depending on the position of the departing employee. In the event that the employee moves to the competition, the costs are actually “doubled”: they damage the company to the same extent as they strengthen the competitor.
Some cost items from the area of opportunity costs: Decrease in performance of the departing employee from the time of actively seeking a job (internal emigration) to the time of termination
8. Surcharge for misplacement: Ø 7,178 € per fluctuation case
This surcharge is calculated according to the probability that the fluctuation costs will be incurred again: if the new employee leaves the company prematurely or in the event of a misplacement. This probability was estimated by the respondents at around 20 percent on average at both survey dates.
The most striking increase in fluctuation costs can be found in direct entry costs. These increased by 77 percent. The extent of this change is surprising: it is well known that new hires today are often only possible at higher salaries, even if their qualifications fall short of the requirements. However, it appears that companies are having to play the earnings joker far more frequently than previously assumed.
Overall, the average minimum total costs per turnover case rose by around 17 percent to € 43,069. Based on the minimum total costs from the fluctuation cost study, this opens up the possibility of analyzing fluctuation-limiting retention management measures in terms of their cost-effectiveness: What are the savings for a company with 1000 employees if it permanently reduces its fluctuation rate by 3 percentage points with this?
Abridged summary of the Fluctuation Cost Study Comparison 2013/2016 by I.O Group Wolf Consulting Wuppertal, Tel. +49 (0)202 277 5000 | io@iogw.de
A more up-to-date study is in preparation.
