How Much Money Is Your Business Losing From Employee Disengagement

I could start this article by showing you the shocking statistics about how much money companies lose each year due to employee turnover, but I won't bore you.

First, im sure you've seen these statistics. Hint: numbers are in the billions of dollars. 

And second, we both know the truth is that many companies would rather incur the cost of employee turnover. In many cases, paying to hire and re-train new employees is actually LESS expensive than the alternative. 

Or is it?

Challenging the status quo

In business, the status quo usually remains for two reasons.

First -- because it’s cheaper to maintain it than to change it. At least in the short term. Or, second -- because the ROI and benefits of the alternative are uncertain.

But things are shifting in the world of work. The Great Resignation has brought the issue of employee turnover (or at least the fear of it) to the forefront. Many businesses had no choice but to start changing the norm and investing in employee engagement. 

However, fear of employee turnover may not be enough to spur change. Or maybe your business doesn’t have a serious turnover problem at the moment. 

But just because people are staying does not mean they are fully happy and engaged either. And that lack of engagement can be incredibly costly for a business.

Just how costly? That’s exactly what we will explore in this brief article. 

Remember: There is an ongoing cost to overlooking employee disengagement. But it’s often overlooked because it can be more difficult to measure. However, you will see that quantifying the cost of disengaged employees is easier than you think.

How Employee Disengagement Impacts Businesses

If an employee is disengaged and unhappy at work, it not only makes them more likely to quit, it affects their productivity and everyone around them.

Disengaged employees are more likely to:

• Be less productive.
• Take more sick days.
• Steal from businesses.
• Have a poor attitude with customers.
• Abuse policies and company time.
• Procrastinate and deliver low-quality work.
• Lower morale on their team, affecting everyone's else productivity.

What is the price tag for all these negative behaviours? 

According to McLean & Company, a disengaged employee costs an organization approximately $3,400 for every $10,000 in annual salary.

• For example, an employee earning $55K per year, would mean a loss of $18,700 per year. 

As of June 2021, Gallup reports that 15% of employees are disengaged at work. 

• If your business has 100 employees and just 15% of them are disengaged, this means your business is potentially losing over a quarter million dollars ($280,500 to be exact) each year due to employee disengagement. 

Of course, this number would be higher if employee disengagement occurs in higher-paying positions. 

Adding it all up

Back to employee turnover, it’s widely known that the direct cost of replacing an employee depends on their position. Statistics show that replacing a mid-level employee can cost 20% of their annual salary. So a $55,000 per year employee can cost about $11,000 to replace.

In 2021, turnover rates across industries were extraordinarily high. The Bureau of Labor Statistics reports voluntary turnover is as high as 25%. However, for our hypothetical, we will lower this turnover rate to a more modest 15%. As the Bureau of Labor Statistics data encompasses all industries including those with sky-high turnover -- like retail and service work.

Here is the financial impact of these numbers on a hypothetical company of 100 employees with an average salary of 55K per year. 

• At a 15% turnover rate, the yearly cost of turnover would be $165,000
• At a disengagement rate of 15%, the yearly cost of disengagement would be $280,500

In total, a business of 100 employees would be losing $445,500 per year due to turnover and disengagement.

Of course, that figure would climb higher as the disengagement and turnover rate increases.

Turning it around: the power of employee engagement

Employee disengagement has a negative financial impact on businesses. On the flip side, organizations with engaged employees benefit from better organizational performance and results. 

An often-cited meta-analysis conducted by Gallup shows that companies with the most engaged employees were 22% more profitable than those with the least engaged employees.

In other words, employee engagement isn't just some abstract HR concept; it has a very tangible productivity connection.

Research and statistics prove this, time and time again. The ROI of employee engagement is not as uncertain as some leaders may believe. Employee engagement programs generate a significant return on investment.