5 Ways Employee Turnover Can Impact Your Small Business

Man packing up his workspace

Employee turnover is the percentage of workers who leave your company and are replaced by new hires during a specified time.

To calculate employee turnover, divide the number of workers who left your business by the number of people you started the period with. For example, let’s say you started your quarter with 10 employees. During the quarter two people quit or were fired. Your employee turnover for the quarter would be 2/10 or 20 percent.

As much as you wish the people you hire would stay with your business for their entire career, some turnover is unavoidable. There are two primary types of turnover to consider:

  1. Voluntary turnover is when someone quits or resigns. You can help reduce voluntary turnover by conducting exit interviews to find out why team members are leaving. You can also conduct stay interviews to check in with your current workforce and find out what they like and dislike about working for your small business.
  2. Involuntary turnover is when an employee is fired or laid off. You can help reduce involuntary turnover by taking your time during the hiring process to hire people who are a cultural fit and will be able to meet and exceed their goals.

Employee turnover isn’t necessarily a bad thing – someone who wasn’t a cultural fit but decided to leave on their own lets you fill their position with someone who will fit into your company better. Or, you might have to fire someone who isn’t as productive as they needed to be. But, any employee turnover will impact your small business in some way.

1. It costs you a lot of money

When someone leaves your small business, it could cost you between 90% and 200% of their salary to replace them. You might also have to continue paying their benefits for a little while, or you might have to give them some severance pay. You’ll also have to spend money on job ads to hire their replacement.

2. It affects morale

If a lot of staff members start to leave your company, morale is likely pretty low already. But, the turnover will cause your remaining team’s confidence to drop even lower, causing them to quit eventually. It can be a vicious cycle.

Read also: Best Ways to Invest in Employees to Reduce Turnover

3. It causes a loss of productivity and performance

When a worker leaves, they’re taking their skills, knowledge, and customer and supplier relationships with them. Your new hire will need some time to be as productive as your previous team member was.

Your company will also lose productivity while you’re looking for a replacement because your remaining personnel will have to pick up some of your former worker’s tasks and responsibilities, in addition to their own.

Read also: 8 Ways to Improve Employee Efficiency

4. It costs you time

When an employee leaves your company, it can cost you a lot of time because you have to

  • conduct an exit interview
  • write and post a new job ad
  • interview candidates
  • onboard your new hire

5. It changes the team dynamic

The personality of your new hire can drastically change how your small business team works together – it could be a good or bad change. Unfortunately, you won’t know for sure until your new hire starts working.

Read also: 7 Reasons Good Employees Quit (and How to Prevent Them from Leaving)

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