The Cost of Brain Drain

6 March 2014

Firms of all shapes and sizes have long understood that losing a valuable member of staff can be disruptive and costly. There are the obvious logistical costs to deal with such as advertising for a replacement, the time senior management must take out of their day to select and interview candidates, and the need to implement a range of processes to get the new employee at his or her desk. But firms are less aware of the financial cost of getting that new employee up to speed and the level of performance expected in their role, all the while paying their wages.

What is the cost of getting new staff up to speed?

We call this the “productivity cost” of staff turnover, and we found that on average it is around five times as great as the more visible logistical costs. This means firms have more to lose from staff turnover than they might be aware of. This is particularly important for firms to understand in the first few months of 2014, as the UK economy continues to recover. With more jobs being advertised, employees are likely to become more confident in their longer term employment prospects, and more willing to look around for the next step in their career. As such, labour turnover could well rise as the recovery continues.

Of course, this is great for the employees concerned, as they will ultimately move towards finding their dream job, rather than staying somewhere that isn’t perfect for them.. And in the long run it is also good for the economy, as more motivated employees are more productive. But in the short to medium term the costs of replacing employees for firms can be significant – on average £30,000 or so in the sectors we have analysed in our report.

How can employers reduce these costs?

Employers should ensure their strategies to retain their key workers remain effective. This means making sure they have initiatives in place to look after their employees’ wellbeing, for example having a comprehensive employee benefits package in place. When they do lose key employees, companies should have these costs in mind and find ways to get their replacements up to speed as quickly as possible.