How much could a toxic culture be costing your business?

Mapping the financial costs of toxic workplaces: payouts, turnover, productivity, and reputation.

Gauging the extent of something as tricky and hard to define as workplace toxicity is a difficult task. When research says that nearly 60 per cent of Australians have found themselves at a toxic workplace at some point in their career, what do they really mean?

According to SEEK Australia, survey respondents consider the following four signs as the best indicators of a toxic workplace:

1. Where bullying has taken place and no action is taken when it’s reported (66 per cent)
2. Where there are cliques, gossip, or rumours (63 per cent)
3. Where employees feel they have to “walk on eggshells” (60 per cent)
4. General harassment is accepted as “normal” behaviour (52 per cent)

Similarly, Kate Heinz, in an article for Built In, included the following “red flags” that might indicate a bad company culture:

• Lacking a list of core values
• Excessive gossip
• Unfriendly competition among employees
• Overworking (working late or not taking offered breaks)
• Little or no hiring from within

In getting to a definition, examples like the above are illustrative, but a deeper look is needed to get at the underlying nature of workplace toxicity. What is it about the above that makes Australians consider them “toxic”?

Toxicity is often ingrained. It can be hard to spot because of how it can infiltrate everyday practice and relationships. According to SEEK psychologist Sabina Read, even when a toxic culture might be hard to point to, “employees will often feel that something isn’t right”.

“It’s the unchallenged thing that’s key here,” said Ms Read. In other words, a toxic workplace is one where negative behaviours or attitudes go unaddressed – or unchallenged.

“Every organisation makes mistakes and has conflict, but when there’s no scope for these issues to be addressed, discussed or challenged, then we know there’s some toxicity at play,” she explained.

The failure of a workplace to address toxic behaviours appears, then, to be a common way for toxicity to become “ingrained”. It takes a blind eye or open acceptance of bad behaviour to make it a true cultural problem.

The business costs of workplace toxicity

According to HR software provider Breathe, toxic workplace cultures cost the UK economy £15.7 billion every year. A number like that can sound about as reductive as the supercomputer in The Hitchhiker’s Guide to the Galaxy, when asked the answer to the ultimate question of life, pumping out the number 42. It can be more helpful to consider where the costs are likely to arise.

Firstly, there are the overt legal fees and payouts associated with soured work relationships. In NSW, workplace bullying compensation payouts range from thousands of dollars to over $1 million. According to Breathe, the average payouts resulting from toxic workplaces amount to £381,350.

Secondly, there are the costs of staff turnover and attrition. As noted by Forbes, a toxic culture often causes an increase in employee turnover. While the average cost of hiring a new employee has been estimated to range from $10,000 to $23,000 per candidate, and often substantially more – the Australian HR Institute puts the cost at 1.5 times the annual salary of the candidate’s role.

Thirdly, there are the productivity costs. According to Feel Good Co, more than half of employees in significantly toxic environments have had to take long-term leave. Toxic workplaces are less productive, said Professor Gary Martin, chief executive at the Australian Institute of Management WA.

“It saps the energy, so you do not have the energy to devote to the work,” said Professor Martin. “Everything seems a drain and gloomy, and as a result of that, if you’re in that sort of environment, energy levels and your productivity just plunge.”

Fourthly, a toxic workplace culture can significantly damage the reputation of an organisation. According to research cited by Feel Good Co, nearly nine in 10 investors would “quickly remove funding” from an organisation involved in a bullying or harassment case.

Unequal impacts

Toxic workplaces appear to affect people differently. In terms of resignations, younger employees and female employees are worst off. A recent survey of thousands of US academics found that the number one reason women leave faculty positions is “workplace climate”. This phenomenon has been dubbed the “toxic culture gender gap”. When asked to describe toxic workplaces, women most commonly used the words: “favouritism” and “clique”.

Research suggests that the negative impacts for women of workplace toxicity might have been felt more acutely during the COVID-19 pandemic.

Further, toxic workplaces appear to be more common in certain industries. Feel Good Co said that the technology sector has the highest rate of toxic culture-related job quitting. According to Forbes, the highest toxic culture gaps between men and women were seen in retail, transportation, and investment services.

For more on the negative implications of workplace toxicity for male employees, click here.

Nick Wilson

Nick Wilson is a journalist with HR Leader. With a background in environmental law and communications consultancy, Nick has a passion for language and fact-driven storytelling.