Happy employees cause an organization to thrive. Frequent turnover can create a negative work environment, impacting morale, productivity and the company’s bottom line. In this post we’re going to breakdown the real impact of employee turnover on your company’s bottom line.

What is the Actual Cost of Employee Turnover?

Employees are appreciating assets to an organization, producing more and adding value to the organization over time, which is what makes losing them so costly. Research on the actual cost of employee turnover is widespread, with no single answer. Some organizations, such as the Society for Human Resource Management, estimate that the cost of replacing a salaried employee is typically six to nine months salary in training and recruiting expenses.

Other researchers predict that the cost is actually higher. Some believe it’s actually two times the cost of the employee’s actual salary, especially for executive-level employees.

It seems as though the actual cost to an organization may vary based on industry, employee wage and experience. While we might not be able to pinpoint exact figures, we can look at the averages.

A Center for American Progress (CAP) study, that was conducted over a 15 year period, found the following average costs to replace an employee:

  • 16% of annual salary for high-turnover, low-paying jobs (earning under $30,000 a year). For example, the cost to replace a $10/hour call center employee would be $3,328.
  • 20% of annual salary for midrange positions (earning $30,000 to $50,000 a year). For example, the cost to replace a $40,000 middle manager would be $8,000.
  • Up to 213% of annual salary for highly educated executive positions. For example, the cost to replace a $100,000 CEO is $213,000.

How to Calculate the Actual Cost of Employee Turnover

Yes, you can calculate the actual cost of employee turnover for your organization. While we can’t take into consideration every single cost, here are a few baselines that you can always take into consideration:

  • Cost of hiring
  • Cost of onboarding and training
  • Cost of learning and development
  • Cost of time with unfilled role

To calculate your organization’s overall cost of employee turnover, calculate the following expenses using this equation:

(Hiring + Onboarding + Development + Unfilled Time) x (Number of Employees x Annual Turnover Percentage) = Annual Cost of Turnover

What can you Do to Prevent Employee Turnover?

Sometimes employee turnover is inevitable. You can, however, put procedures and policies in place to help boost retention. Here are some strategies for reducing employee turnover:

  • Get feedback. Don’t just assume that employees are happy. Request feedback frequently, whether it’s directly or through anonymous surveys, and keep a pulse on morale.
  • Humans constantly seek growth and change, and good organizations create opportunities for your employees to learn and grow with the company. Have individual conversations with each employee to clearly understand their goals, and find a way you can work together to achieve personal and organizational success.
  • People want to feel good about the work that they do. Does your company have a feel-good mission that employees can really get behind? What is your why? Help employees to clearly understand your goals, and how they directly affect them.
  • Many organizations, especially those with high turnover rates, see employees as cogs in the wheel rather than human beings. If you want employees to stick around for the long haul, show them that you care. Build a culture where people respect and appreciate each other, and you’ll have a happier workforce.

If your organization is running into issues with employee turnover and you aren’t sure why, or would like assistance in hiring stellar employees, we’re here to help. Contact us today to speak with one of our recruiting ninjas, who will be happy to guide you through the process. We love what we do, and will help you find the best candidates for your organization.