What Is the Real Cost Of Employee Turnover

What Is the Real Cost Of Employee Turnover

The employee turnover rate and the retention of skilled employees is a major problem businesses face. “Conservative estimates put the cost of replacing a lost employee at 25 percent of the annual compensation amount. For the typical full time employee who earns $38,481 and receives $50,025 in total compensation, the total cost of turnover would amount to $12,506 per employee.” This being the case employee turnover is a major cost and can significantly influence the bottom line so it should be avoided if possible. (Bliss)

“Employee turnover is a critical cost driver for American business. The cost of recruiting and filling vacancies, lost productivity from vacant jobs, and the costs of training new employees increase operating costs, reduce output, and cut into profits.” (Orville 5-7)

Estimates of the costs of employee turnover vary widely and depend on whether all cost elements are recognized. The three primary elements of turnover cost include:
• Staffing – sometimes called cost-per-hire include the costs of exit interviews, recruiting, job applications, screening applicants, relocation expenses and signing bonuses.
• Vacancy – While a position is vacant, the productivity of the former employee is lost and the productivity of the overall organization is reduced, as remaining workers have to cope with being short-handed.
• Training – No new employee starts work at 100 percent efficiency. The replacement employee’s time, other employee’s time and valuable resources must be expended to train each new employee and to facilitate the transitions.

So how do employers retain employees? Many employers try gimmicks, games, and prizes. F. Leigh Branham, author of Keeping the People Who Keep You in Business offers the following advice for retaining employees:
• Don’t always hire the best, but hire the “best fit”.
• Have the insight to realize that no matter what the job not just anyone can do it well.
• Focus on matching the person’s strengths to the right challenge and the right role, not on improving weaknesses to the point that every employee is well rounded.
• Build a culture of trust by giving people free reign to ...

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...er off in another company or if your company would be better, off without the employee you are facing a positive situation and the financial impact may be a small sacrifice. However, if the employee is a true asset to your company it may be worth your time to try to sway him or her to rethink their decision to leave.

The true cost of employee turnover can only be determined by weighing all the facts and looking at how it impacts your organization. You need to look at all the factors, monetary as well as organizationally to determine if the outcome was negative or positive.

Works Cited

Bliss, William. “Cost of Employee Turnover.” The Adivsor. 11 Nov 2004 http://www.isquare.com/turnover.cfm. Branham, Leigh. Keeping the People Who Keep You in Business. : Amacom Books.

Javitch, David. "How Much Turnover is OK?." 01 2003. Entrepreneur.com. Entrepreneur.com. 01 Dec. 2004 .

McNally, Steven. "Turn Away Turnover." Security Services. September 2004: 16 - 19.

Orville, Wilbur. “Calculating the Cost of Work/Life Turnover.” Workforce March 1997: 5-7

Unknown. "Employee Turnover - A Critical Human Resource Benchmark." hr Benchmarks December 2002: 20 – 23