Blog

The Hidden Impacts of a High Turnover Rate

Erin Iafelice
high turnover rate image

2020 has seen a job market with substantial job losses and rising unemployment claims. The speed and level of disruption are unprecedented. With so many out of work, it’s hard to imagine anyone leaving their job, but, according to the U.S. Bureau of Labor Statistics, the quit rate rose across the U.S. by 1.9% in June 2020. (Quits are considered a voluntary separation by the employee, and do not include retirement, death, disability or intra-company transfers). Perhaps not so surprising, the industries with the largest turnover rate increases included healthcare, social assistance, hotel and food services, and retail.

A high turnover rate comes with all kinds of costs to the organization. While some are clear and easy to quantify, others are less tangible. Recruiting teams have a lot on their plate right now, but they can’t afford to take their eye off the number of employees leaving. Here’s a look at some of the major impacts of a high turnover rate.

Replacement costs are high. The Work Institute estimates that it costs up to $15,000 to replace an employee. This figure includes the costs of termination and new recruitment and the vacancy cost, which is the number of days the job is open times the average value of the job per day. It also includes the cost of productivity loss, defined as revenue per employee per day times the number of days it takes to get the new hire up to standard performance.

A high turnover rate lowers team morale. For teams struggling to meet their goals, the loss of team members and the continual introduction of new ones can be disruptive and disheartening. It can cause turnover contagion. An analysis of networks at work by Worklytics found that when an employee leaves a team, their team members are two to three times more likely to leave. A common reason for this contagion phenomenon is low morale, especially if the employee who leaves first is strongly connected with the team or viewed as a top performer.

The ability to attract new employees is diminished. When an organization is viewed as “a sinking ship,” word gets around quickly, and its talent brand often takes a hit. Additionally, employees aren’t as likely to make referrals, which can substantially negatively impact talent acquisition performance. Candidates referred by employees are four times more likely to be hired, and 82% of employers rate employee referrals above all other sources for generating the best ROI. 

How to reduce a high turnover rate

HR teams can reduce their turnover rate with strategies and technology implemented during hiring. Modern Hire’s pre-employment assessments leverage predictive analytics and are proven to identify candidates most likely to remain on the job. Using AI-powered analytics and the science of industrial-organizational psychology, these job-specific assessments report on a candidate’s core components for the role and can accurately predict retention. They also evaluate other essential factors such as culture fit and work style, which help determine fit and whether a candidate is more likely to stay in a specific role.

Modern Hire’s pre-employment assessments are easily integrated into a virtual hiring workflow, enabling recruiters to assess fit early on in the process across large talent pools. While the assessments provide recruiters with data, they also give candidates a realistic job preview and the opportunity to experience an immersive job simulation. As a result, candidates can better understand their fit for the role and make a more informed decision if they receive a job offer.

With Modern Hire’s pre-hire assessments, recruiting teams gain the ability to report on hiring outcomes and the related business impact. Each year, one organization that hires 2,000 front office employees reduced its turnover rate by almost 10% with Modern Hire, which equates to about $3 million in annual savings. Another business that hires 15,000 warehouse employees each year was able to understand its talent pool regarding turnover risk better. Modern Hire’s pre-hire assessments found that applicants who scored in the bottom 5% of the assessment had a turnover rate of 30% during the first 90 days, compared to a turnover rate of 20% for all other applicants. The organization saved $450,000 by avoiding hiring those who scored in the bottom 5% of the assessment. Its recruiting team can also make more well-informed decisions regarding the cut score, so it can adjust to its pool of available talent while continuing to make an impact on turnover.

To find out more about how Modern Hire’s pre-hire assessments can predict which candidates will stay on the job, read the Business Impact Brief: Turnover.