Brexit: Quantifying the Human Risk



November 6, 2018

In Part 1 of this series, we outlined the people problem Brexit will have on businesses in the UK. Now it’s time to quantify the problem and outline how proactive and compassionate management can reduce expensive employee turnover and make existing workforces more productive.

The fact that Theresa May recognises the UK must continue to attract the best and brightest to work and study in Britain is a positive sign for the future talent of the workforce. How she manages this, as part of her policy to control immigration, will be critical to ensuring that British organisations rely on the skills of an international workforce to remain competitive.

As negotiations between the UK and the EU intensify, there are steps that can be taken to keep EU talent; however, the majority of organisations haven’t taken these steps yet. The Chartered Institute of Personnel and Development (CIPD), a professional body for HR and people development, reports that 35% of EU citizens working in the UK are considering leaving, and 8% already plan to leave.

Constantly recruiting and training new employees is an expensive burden across industries and limits company growth. Estimates for the cost of replacing a single employee range between 1.5 and 2 times their annual salary. An analysis by Oxford Economics states that the average fee for replacing a staff member in the UK is £30,614. This amount is comprised of two factors – £5,433 for logistics such as agency fees and advertising, and £25,182 for wages during the time when a new employee is yet to reach the optimum productivity level (about 28 weeks). These costs are often overlooked yet have a significant impact to the bottom line of an organisation. At the same time, incremental improvements to talent management are straightforward to implement.

So, What?

For a medium-sized business with 250 employees, an average of 18 people will be EU nationals. From the 18 EU nationals, taking into account the above statistic that 35% are considering leaving, that will equate to 6 people potentially leaving due to Brexit. That could cost a medium-sized business approximately £188,000 – a significant amount for any organization. For a larger business with 1,000 employees, that could mean 24 EU nationals leaving at a potential cost of £734,000 post-Brexit.

The flipside, talent retention, has numerous financial benefits to an organisation. Studies show that reducing employee turnover from an industry average, into a top 10 percentile organization can increase profits by 50%. Furthermore, it has been proven that the monetary benefits achieved by reducing turnover have generated an actual return on investment as high as 1,000%.1

What can your organisation do?

Compassionate management is needed when dealing with the inevitable Brexit fallout. The trick is to understand your people’s motivations and to offer meaningful advice about basic concerns. Acknowledge, and even embrace the uncertainty caused by Brexit. If you can sense your employees are concerned about the future of the country, your organisation, or their jobs, don’t carry on with business as usual.

Be practical. Although there are factors beyond a company’s control, companies can directly impact aspects correlated with turnover rates. The June 2017 policy paper on the status of EU citizens, post-Brexit, is a good starting point in identifying potential impacts to your workforce. As demonstrated in this blog, human risk has a cost and not addressing it presents a financial risk. Start thinking about your people. Where do they stand? If they want to stay in the UK, how should they apply for residency? What else should they be doing and when? Seek to proactively answer these questions to build trust and credibility with your people. Run focus groups, map out EU employee journeys, ask leadership to commit to supporting all EU nationals and run campaigns to raise awareness and visibility.

Theresa May might be facing uncertain times, but it doesn’t have to be the same for your organisation and employees. Stay tuned for Part 3 in this Brexit blog series later this year or check out Part 1 hereWe are not waiting for Brexit to, “just happen.” Are you? 

1Fitz-enz, J. (2008). The ROI of human capital (2nd ed.). New York: AMACOM