The cost of employee turnover is significant and cannot be ignored. Management goes ballistic when inventory is lost or materials are wasted. But when it comes to employees, bad hires and poor performance are tolerated and even excused as if the voluntary or involuntary loss was unavoidable and a necessary and fixed cost of doing business. Even if a company saves money by firing an employee who has stolen or has very low productivity, the firm incurs significant short-term additional costs to replace that worker with one who will perform the job better than the one fired.
Listen to The High Cost of a Bad Hire – Ira S. Wolfe, Recruiting and Hiring Top Talent
It’s time for management and HR to wake up and plug the cost of employer turnover leak! While no employee selection is perfect, companies using best practices in recruiting, screening, selection and retention are minimizing the cost of turnover.
One reason why a business would ignore the cost of turnover is that many hiring managers and HR look only at direct costs such advertising costs, search and agency fees, training costs, temporary employee fees, severance pay, unemployment taxes, and of course, man-hours for screening, interviewing, background checks and the like.
But costs increase dramatically when you consider the cost to replace workers because of the productivity losses when someone leaves a job, the costs of hiring and training a new employee, and the slower productivity until the new employee gets up to speed in their new job.
A recent meta-analysis by the Center for American Progress reviewed 30 case studies in 11 research papers published between 1992 and 2007 that provided estimates of the cost of employee turnover. The outcome – businesses spend about one-fifth of an employee’s annual salary to replace that worker and consistent , regardless of the level of wages being paid to the departing or incoming employees.
Here are a few examples of the cost of turnover. You will likely notice that even the cost of turnover for an entry-level position adds up since these positions typically have the highest turnover rate.
Middle manager (consumer products company) – $98,000 to $117,000
Call center employee – $21,551
Grocery store manager – $34,735
Registered nurse – $23,487 to $67,100
Physicians – $66,137
Cashier – $2,286 to $4,313
Home care aide – $3,362
Line cook – $2,077
While important, direct costs mentioned earlier typically are manageable if not insignificant compared to indirect costs.
Indirect costs act like dollars floating out the open window. Indirect costs includes lost productivity of the terminated employee, lost productivity of the new employee while in training and on-boarding, production errors, impaired customer service, low morale due to other employees “covering” for missing employee, lost clients, and of increasing importance – loss of knowledge.
The challenge for executives and managers is accounting for indirect costs. By their very nature, they are hidden, somewhat subjective, and hard to track. Regardless, they are critical and no excuses should be accepted. The question executives should ask is “how can we track the cost of turnover better” not “if it can be tracked.”
Here’s the bottom line: The cost of employee turnover is one of many elephants in the executive office that consistently is minimized, if not pushed aside completely. But with one-fifth of workers voluntarily leaving their job each year and an additional one-sixth getting fired or otherwise let go involuntarily, the drag on the bottom line is something that management can no longer ignore or push aside.