Employee Turnover. We all deal with it to some extent, although some industries suffer more than others. Think hospitality and the service sector. And we all lose money because of it. But what are the actual stats? Brace yourself – you may be in for a bit of a shock.
The average cost across independent research findings show that a departing $8/hour employee is $9,523. And the average cost of a departing $80K salaried manager is a whopping $108,963. These losses are tied into the inevitable expenses wrapped up in having to hire new employees.
With the widespread, and we believe, well-founded fear that there will be a surge in employee departures as the economy strengthens, it might be a good time to really assess how much that turnover is going to cost you. Currently, this trend is more pronounced in the States but is beginning to be echoed in Canada as well. Employees who feel they were not treated well during the recession may start looking for greener pastures in droves and that could cost you.
Consider this information, compiled by Bill Bliss of Bliss and Associates, Inc. Bliss has created a comprehensive checklist of items to include when calculating the cost of turnover in any organization. He breaks it down into various categories that include the following, often hidden, costs.
1. Recruitment Costs can include:
■money spent on advertisements, internet postings, or agencies/recruiters
■administrative costs of handling, processing, and responding to the average number of resumes
■costs for hiring department to conduct interviews and reference checks
2. Training Costs can include:
■orientation materials and time for both new employee and employer trainer
■supervisory time spent in assigning, explaining, and reviewing work assignments and output (this is an ongoing cost for at least the first two months)
■the loss of funds invested in training the departing employee, plus the money you'll need to further invest in the new employee
3. Loss of Productivity Costs can include:
■the impact on departmental productivity (who will pick up the work, whose work will suffer, what departmental deadlines will not be met or delivered late)
■after their period of training, the employee contributes at a 25% productivity level for the first 2-4 weeks; a 50% productivity level for the next 5-12 weeks; and a 75% productivity level for the next 13-20 weeks
■co-workers and supervisory lost productivity due to their time spent on bringing the new employee "up to speed"
■mistakes the new employee makes during this elongated indoctrination period
4. New Hire Costs can include:
■administrative costs to add new employee to payroll, establish computer and security passwords and identification cards, print business cards, internal and external publicity announcements, telephone and email accounts, or leasing of equipment.
Surprising, isn't it? Bliss estimates these costs usually total 150% of the employees annual compensation figure and will reach as high as 250% for managerial and sales positions. Assuming an average employee salary of $50,000 per year for any given organization and estimating the cost of turnover at 150% of that salary, the cost of turnover is then $75,000 per employee who leaves the company. For a mid-sized company of 250 employees who has a 10% annual rate of turnover, the annual cost is just a hair under $2 million.
And these are only the direct costs of employee turnover.
Other, more indirect costs, include damage to your brand and reputation, the loss of customers, declining employee engagement and morale, and decreased sales.
While there are many reasons why employees leave workplaces, there are proactive measures that employers can take to retain their workforce. Here at HiringSmart, we believe that a key to retention is "fit" – ensuring that new employees fit with the job, fit with the manager, fit with the team, and fit with the organization.
If the spectre of employees walking out the door and taking their expertise, your customers, and your money frightens you, you might want to consider a new paradigm for hiring that keeps employees happy, engaged, and productive.
