How Much is Employee Turnover Really Costing You?
December 13th, 2011While retention is a hot buzzword these days, you can’t talk about retention without talking about turnover. Do you realize how much it’s costing you? Turnover costs most companies thousands if not millions of dollars a year – but most employers don’t realize it!
Companies routinely record and report costs such as wages and benefits, workman’s compensation insurance, utilities, materials and space, yet most companies have no system in place to track and report the cost of employee turnover.
How to Estimate Turnover Costs
- SHRM, the Society for Human Resource Management, once estimated that it costs $3,500.00 to replace one $8.00 per hour employee when all costs — recruiting, interviewing, hiring, training, reduced productivity, etc., were considered. But SHRM’s estimate was the lowest of 17 nationally respected companies who calculate this cost!
- Other sources estimate that turnover costs you 30-50% of the annual salary of entry-level employees, 150% of middle level employees, and up to 400% for specialized, high level employees.
- Do a quick calculation: Think of a job in your organization that has experienced high turnover, maybe supervisors. Estimate their annual average pay and the number of supervisors you lose annually. If their average annual pay is $40,000, multiply this by .125% (125% of their annual pay). The result? It costs $50,000 to replace just one supervisor. If you lose ten supervisors a year, you’re spending $500,000 in replacement costs just for supervisors. And that’s the bottom line cost. The top line cost? If the company’s profit margin is 10%, then it costs $5,000,000 in revenues to replace these ten supervisors.
Do These Numbers Seem Unbelievable?
Actual turnover costs are usually much higher than we think they are.
If you want to find out exactly how much turnover is costing your organization, find an online employee turnover calculator. Just remember that only tangible costs can be calculated on these sites. Intangible costs are just as real and sometimes much greater than quantifiable costs, but they are difficult if not impossible to measure.
Why Don’t More Companies See This as a Costly Problem?
Many companies don’t realize the true cost of turnover, which costs companies in both expertise and dollars, because they have never examined it. Here are five possible reasons:
1. No process is in place to tabulate the costs of turnover.
2. If they are measured, those costs are not reported to top management.
3. Employers think it’s an inescapable cost of doing business — but it’s not!
4. Everyone thinks it’s an HR problem, but it’s really a strategic issue requiring top management and HR’s combined attention and actions.
5. Costs are underestimated, so they don’t cause concern.
How Can You Measure Turnover Costs in Your Organization?
A comprehensive program measures the following costs:
- · Separation costs
- · Replacement costs
- · Training costs
- · Vacancy costs
Separation costs include:
- costs incurred for exit interviews
- administrative functions related to termination
- separation/severance pay
- any increase in unemployment compensation.
Replacement costs include the cost of:
- attracting applicants
- entrance interviews
- testing
- preemployment administrative expenses
- acquisition and dissemination of information.
Training costs include both formal and informal training costs. Vacancy costs include the net cost incurred due to increased overtime or temporary employees needed to complete the tasks of the vacant position.
How can you reduce turnover?
When turnover costs are unacceptably high, do an assessment. Find out who is leaving and why. Exit interviews can help you gain information. Then develop a retention program based on your findings.
You can always contact Berks & Beyond to find out how we can help lessen your turnover costs!