How Much is Employee Turnover Costing Your Company?

This is something that employers are temptedCounting Costs to ignore, but understanding the true costs of employee turnover may be a critical component when ensuring your business is running efficiently. There are many methods by which employers calculate this cost, including an estimated percentage of the employee’s salary, but when the numbers are really added up, the figure may be surprising. In this post, we will discuss different measures that should be calculated by employers in order to understand the actual financial impact of employee turnover in their organization. Following are a list of considerations that employers should examine when calculating the cost of turnover:

  • Time and money spent on hiring the employee’s replacement
    • Are you paying a recruiter?
    • Cost of posting to job boards
    • Time and salary spent by employees who are managing the hiring, training, and on-boarding process
  • Time and salary of co-workers and/or managers filling in to complete the critical portions of the former employee’s work, or the cost of the work not being done
  • Lost productivity
    • What portions of their own job are being neglected, when employees are covering for the lost co-worker?
    • Are you paying employees overtime so that everything gets done?
    • What portions of the former employee’s job are being overlooked?
    • While they’re training a new employee, co-workers and/or supervisors may not be doing their own work as efficiently
  • Severance pay or unused vacation pay that is paid out to the departing employee
  • Period in which the former employee was disengaged
    • Whether the employee left voluntarily or was terminated for cause, there was likely a period of time in which they weren’t motivated to work at full productivity
  • Customers or vendors who follow the employee to their new position
    • While this doesn’t happen in every case, it is a common occurrence, and is the reason that employers insist on a “no-poaching” component in employment contracts. However, the customer is the ultimate judge, and if they had a good relationship with the employee and wish to follow them, it is hard to prevent.
  • Morale and productivity of co-workers
    • Whether an employee leaves or is terminated, it causes a disruption in the workplace. It is important to manage this disruption in such a way that the impact to the business is minimal.
  • Promotional Considerations
    • In some cases, a departing employee may have been the public face of the company, and if the departure is not managed well, it may tarnish the company’s image.
    • Costs incurred to announce the new employee should be included in this analysis.
  • Loss of organizational knowledge
    • When a key technical employee or a person who has been managing a critical role in the company leaves, there are invariably portions of knowledge that are not passed on to co-workers or their replacement.
All of these considerations should be addressed when calculating the cost of employee turnover, and are the reason that companies turn to recruiters to help in the hiring process. Hiring can be tricky, and companies can’t afford to get it wrong. While it is true that employees on an executive team, or highly skilled individual contributors may have a greater impact on the organization upon their departure, the loss of a well-liked assistant may have a great emotional impact as well, and this measure will not be accounted for in a calculation based on percentage of salary alone.


For more information on how Hireix can help you get hiring right the first time, contact Amy Bloom, Vice President, Hireix.

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