EMPLOYEE TUNOVER: THE REAL COST OF TURNOVER
Employee turnover is a fact…and a cost that your business can ill afford to ignore.
Numbers vary, but research indicates that the cost to replace a single employee runs somewhere between 50 and 200 percent of that person’s annual salary. And even if your company can afford to replace someone, will you be able to find a quality replacement?
The difficulty in determining the actual cost of employee turnover lies in the intangibles. It is not sufficient to merely look at the price of the recruiting. You have to consider all the other activities involved including the hours spent on the process not to mention what you lose when a quality employee leaves.
If you haven’t given a lot of thought to the cost of employee turnover, here are some of the things that you may need to consider:
- Separation Cost
- Termination (administrative cost to process final pay check, legal fees)
- Severance (vacation, severance pay, unemployment)
- Sourcing Cost
- Advertising (newspapers, journals, trade publications, Internet)
- Other sources (job boards, agency fee)
- Testing/references (personality test, drug test, background check)
- Coverage (temporary help, overtime pay)
- Training Cost
- New hire orientation
- On-the-job training (formal or informal)
- Hiring Cost
- Employee referral (if your organization has a program)
- Relocation
- Sign-on bonus
- Salary change (+/-)
- Productivity Losses
- Start up Performance – Less than Standard
- Low Morale of Co-workers
- Standards of Performance and/or Attendance Lowered
- Lost Business
- Prospects Lost
- Customer Lost
- Other Costs
- Managerial Energy Diversion
- Company Cars, Personal Computers
- Unemployment Compensation
Now, in addition to this list, you have to take into account the salary of the recruiter as well as anyone else involved in the hiring process, such as the hiring manager who has to take time out of her busy schedule to interview candidates or the other human resources staff member who facilitates new hire orientation.
Another cost of employee turnover that many organizations completely miss is the cost associated with the loss of organizational knowledge. This is not something that can actually be quantified; however, the company is likely to feel the pinch of losing someone who has years of information about the company’s operations.
Whatever you determine to be your company’s employee turnover cost, know that it can impact more than just the bottom line. The loss of a friend to the co-worker left behind, the loss of a contact to an internal or external customer, and the loss of a subject-matter expert are all part of the cost you pay for employee turnover.
Explore posts in the same categories: Employee Retention, Employee Turnover
Thank you for pointing out the unquantifiable losses involved in turnover. A lot of the time I think employers forget about the greater value they get from an employee because they are focusing on financial aspects so much. You lose so much more than just money when a good employee goes somewhere else.
Cost of turnover = N x A x Y
N = Number of employees that were replaced
A = Average Annual Salary of those replaced
Y = Cost of turnover multiplier
for A $100,000 use 2.00
Employers need to calculat their own Ys.
The multiplier “Y”in the table above comes from users of the Bliss-Gately Tool which is the most complete tool to use to calculate the cost to replace an employee(s).