Why is Employee Turnover So High in Construction?
In this post we discuss job turnover, discuss why job turnover is so high in construction, and explore the costs associated with high turnover.
Jun 9th, 2020
What is employee turnover?
Employee turnover (also called churn) is higher in construction relative to other industries. While many workers have remain committed to the same firm for years and even decades, that has increasingly become an exception to the rule in construction.
First off, let's define turnover:
- Number of workers who went through payroll in a given period (X)
- Number of workers terminated during given period (Y)
- Turnover (%) = Y (workers terminated in period) ÷ X (workers on payroll in period)
Why is turnover so high in construction?
High turnover rates for construction tradesman are rooted primarily in two dynamics.
The first is that construction employers frequently reduce a significant portion of their workforce through layoffs at the end of each project. For some firms, that portion could be up to 50% or more of their workforce.
The second dynamic leading to high turnover is that construction workers are increasingly opportunistic when it comes to pay. In a survey conducted by Buildforce with 39 participants (all construction workers), nearly 50% of respondents said they would switch jobs for a pay increase of $1.00, $2.00, $3.00, $4.00 per hour regardless of lost benefits, and exactly 50% also said they would switch jobs for a one time bonus payment of $250.
The scale of employee turnover is striking. One large construction firm headquartered in Texas reported that their annual turnover rate was over 400%. Similarly, a crane operator who is a member of the Buildforce network told us that he worked as a W-2 employee for eight different companies in the year of 2019!
What costs are associated with employee turnover?
Turnover is expensive. A head of HR from a construction firm headquartered in Houston, TX reported to our team that total HR costs for a short-term employee can cost up to $10,000, or about 20% of a worker's annual wages. These costs include:
- Recruiting and Replacing Lost Talent: Firms with high turnover need to constantly recruit and replace lost talent. Firms who manage this process internally hire HR and recruiting team members, who on average will cost $50,000 a year. For a small to mid-sized construction subcontractor, this can be a meaningful expense.
- Performance Verification and Training: Once your team has identified promising talent, you'll need to ensure that they are competent within their trade, reliable, and work according to best safety practices. Initial performance verification and training could take several days to weeks before a worker is ready to get on the job.
- Other Direct and Indirect Costs: Other important considerations when it comes to employee turnover are the HR of related administrative work, increased FUTA and SUTA unemployment taxes, loss of employee morale and subsequent departure of other employees.