Three Problems Caused by Employee Turnover and Implications of an Inefficient Hiring Process

Feb 24th 2014
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Read more articles by Richard Alaniz.

Employee turnover, in industries like accounting, has always been a problem. Too often, revolving workforces lead to increased training costs, inconsistent production, poor morale, and, consequently, reduced or limited profits. According to the Society for Human Resource Management (SHRM), employers should focus on turnover for three important reasons:

  • Cost implications. Replacing workers can be expensive. While the cost varies, some studies have shown the cost to replace and hire new staff as high as 60 percent of the old employee’s salary. In addition, total costs of replacement, including training and lost production, can range from 90 percent to 200 percent of an employee’s annual salary.
  • Overall business performance. In addition, oftentimes the employees who remain with a company are less productive and less efficient than they would have been in a lower turnover environment. This is because they must absorb the responsibilities of the vacant positions, train new employees upon their arrival, and deal with a depressed work culture and environment. As a result, companies with lower retention rates and high turnover are often less competitive and produce less than companies with a stable workforce.
  • Turnover can be difficult to control. And finally, national studies consistently show that employees quit jobs more often because of workplace culture or inter-employee relations than because of the difficulty of the work. A culture of high turnover feeds off of itself, leading to lower and lower retention rates. It can be hard to manage a workforce that is constantly in flux; oftentimes leaving companies in a tough position to compete.

In addition to the benefits associated with a stable workforce, employers may be exposing themselves to additional legal liability when hiring new employees. This is because there are a number of laws that employers can run afoul of during the hiring process.

The Legal Exposure of an Inefficient Hiring Process

As everyone knows, it is illegal to discriminate against job applicants on the basis of protected characteristics, such as race, color, age, sex, national origin, disability, or religion, among others. In general, these laws are enforced by the US Equal Employment Opportunity Commission (EEOC), which is tasked with investigating complaints, and has the power to bring lawsuits against employers.

The EEOC has stressed that it believes discrimination in hiring continues to be a problem in many workplaces. Additionally, in its Strategic Enforcement Plan for the Years 2013-2016, the EEOC has made clear that eliminating barriers in recruitment and hiring is one of its biggest concerns.

Discrimination claims fall under one of two types: disparate treatment or disparate impact. Disparate treatment is outright discrimination, or treating someone differently based on a protected classification. Disparate impact, however, involves practices that appear unbiased, but yield a discriminatory result (e.g., requiring a high school diploma for a production line worker might eliminate more minority workers). If the requirement is not related to job performance, the company may face a disparate impact claim. 

By putting a little effort into finding quality employees, employers can reduce their turnover, increase their production, and limit their liability—all at the same time. This requires reviewing and, if necessary, revising your interview and hiring procedures.