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on April 01, 2016 Engagement

The Real Cost of Employee Turnover

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It's no surprise that Employee Turnover ranks #1 on the Top Challenges Faced by Human Resource Teams, followed closely by employee engagement and succession planning.

Unfortunately, the actual costs of employee turnover are rarely seen in standard accounting practices - but we know they exist because they can be easily identified. Things like lost company knowledge, culture impacts, replacement recruitment costs, new employee training costs and lost productivity during the new employee onboarding ramp-up period.

The Center for American Progress completed an investigation into 30 case studies in 11 research papers published over 15 years between 1992 and 2007. You can find the full report here (see page six for full details on the case studies).

Employee Turnover Costs 21% of the Departing Employee’s Salary

The key finding from the analysis were that for almost all positions that require specific skills - the median cost of turnover was 21% of the departing employee’s salary.

As expected, jobs that were more complex or required higher levels of education or specialized training had even higher turnover costs.

Super high paying jobs, like those at the CEO or VP level, tended to have disproportionately high turnover costs (up to 213% of the employee's salary).

The cost of employee turnover is a major issue because (continuing from the report) about 20% of employees voluntarily leave their job each year.

Some Back-of-the-Envelope Math

Whats that actually look like for your company?

Well, if we take 100 employees times an Average salary of $80,000 times a 20% employee turnover rate and a 21% employee turnover cost, we get $336,000 per year. 

Here's what that same back-of-the-envelope calculation looks like at different average salary levels - assuming the same 100 person-company with 20 employees leaving over the course of the year.

 

Employee Turnover Cost Annual Employee Turnover Cost for 100 person company 

Ouch. And this excludes an additional 15% of employees that are let go involuntarily.

But doing business is already expensive!

We commonly hear that companies are more concerned than ever about the rising cost of doing business - the health insurance, social security, medicare, the lunches, the popcorn machine. In California, employee on-costs can be 10% to 15% on top the salary - see the infographic by Gusto here.

But what these companies should more of their energy on is the rapidly increasing cost of employee turnover. $366,000 per year could cover a lot of company perks - staying with our 100 person company, that’s $280 per employee per month.

What this means for you?

The ability to find, develop and retain a strong team in today's market is huge competitive advantage, and can avoid an enormous amount of employee turnover costs - both those seen and unseen.

It’s no surprise that high employee turnover rates are often due to workplace policies. A study by CareerBuilder found that almost 50% of departing employees would be enticed to stay with a company for flexible working schedules, increased recognition, or just listening to employee feedback.

It's mission-critical that Human Resources and People teams pay keen attention to employee issues and concerns, and address them proactively to avoid the hidden costs of employee turnover that can kill company ROI.  

And with the abundance of employee experience and engagement solutions available - it has never been easier to provide great experience to employees and support their well-being. 

Providing a great employee onboarding experience can go a long way towards decreasing employee turnover. Want to learn more about building better connected, more engaged, and higher performing teams?

Download the Sapling Guide to Employee Onboarding Success or sign up for a product demo below.blog_banner.png

Andy Crebar

Andy Crebar is a Co-Founder of Sapling, which helps companies use Employee Onboarding to amplify their total Employee Experience (‘EX’). He is passionate about people, self awareness and self improvement.