Calculating The Cost Of Employee Turnover
How much does employee turnover cost your business?
Hint: It’s probably more than you think.
Did you know? The average cost to replace a terminated employee (i.e. employee turnover) is about 50 percent of that employee’s annual salary.
Average cost of employee turnover by position type
The chart below indicates the breakdown of replacement costs that an employer might incur to replace certain levels of employees:
Average Replacement Cost
|Entry-level/non-skilled||30-50% of employee’s annual salary|
|Service/production||40-70% of employee’s annual salary|
|Clerical/administrative||50-80% of employee’s annual salary|
|Skilled hourly||75-100% of employee’s annual salary|
|Professional||75-125% of employee’s annual salary|
|Technical||100-150% of employee’s annual salary|
|Supervisor||100-150% of employee’s annual salary|
Categorizing employee turnover costs
The costs associated with replacing an employee can be generally sorted into one of three categories: separation costs, recruitment costs and productivity costs.
Separation costs are the costs an employer incurs during the process of terminating an employee, including severance pay, costs associated with unemployment insurance claims, the expense of continued benefits, etc.
What many employers forget to include in their estimates of separation costs, however, is the time other employees spend processing the employee’s termination, including removing the employee from payroll or benefits systems, conducting exit interviews, etc. In this way, every employee that leaves an organization, even those who resign or retire, will cause an employer to incur at least some expenses related to the separation.
Recruitment costs are those that an employer incurs looking for someone to fill their newly vacant position. This includes everything from the the cost of developing an updated job description to the cost of training the new employee, and everything in between.
Just think about it: every open position represents hours and hours of work for recruiters, HR professionals and hiring managers, who have to sort through applications and resumes, deliberate and narrow down the applicant pool, schedule and participate in interviews, and then meet again to select a candidate. And that’s a pretty brief hiring process – many employers also now use pre-employment screenings to assess applicants’ skill sets and personalities, and require that promising candidates meet with multiple people within the organization prior to making an offer. The longer the hiring process, the more expensive it becomes.
Productivity costs are a little harder to quantify than separation costs or replacement costs. Included in this category are not only the hours of lost productivity that rack up as a position remains unfilled, but also the time other employees spend trying to pick up the slack. But employers don’t just lose a worker when an employee leaves – they also all the experience and expertise that employee brought to their job, and any costs associated with employer-provided training.
Also included here is the time it takes for the new employee to get up to the level of production and productivity of the previous employee, which can range from just a few days to a few months depending on the type of position they’re filling.