Why Turnover Is Expensive for Businesses

Why Turnover is Expensive for Businesses

Why Turnover is Expensive for Businesses

Many managers never realize the full importance of employee retention. They normally have a specified set of objectives to hit or maintain. Most managers are usually only concerned with ensuring their department delivers the objectives that affect their bonuses. However, the piece that many managers often take for granted is the company's number one asset. The employees who make all those objectives actually happen.

Employee turnover costs

It is not surprising that managers do not consider employee retention as a viable or as a controllable cost to an organization given that over 50% of organizations do not even have a process in place to track these cost (Blake, 2006). Furthermore, management usually does not see the true value of these costs because no one wants to highlight another traceable objective to their scorecard. Additionally, many organizations underestimate these costs, and because of that, they draw less attention. (Blake, 2006)

How much does turnover cost?

Turnover cost are estimated to range from "30-50% of the annual salary of entry-level employees, 150% of middle level employees, and up to 400% for specialized, high level employees!" (Blake, 2006) If a company loses five frontline employees per month that earns $25,000/year, then they will experience approximately a $10,000 cost per employee, or a $50,000 dollar cost, or enough to pay two of those full time employees' salaries for the year. If this average happened monthly then the company would experience over a half a million dollars in turn-over costs.

Where do the costs come from?

The example above figured to a 40% turnover cost could be extremely low. Many analysts find the true cost to be closer to 150% of the annual salary. Some of the costs caused by a person leaving are the costs to fill vacant position including overtime, lost productivity, labor spent doing exit interviews, administrative expenses to stop payroll and benefits, and time management spends covering or reworking the open position. There are also the lost expenses spent to train the lost employee, any severance or benefits due to the employee if owed, the lost knowledge and skill of employee who left, unemployment costs, and business or customers that the employee takes with them. (Bliss, 2012)

There are also recruitment costs that include advertising the new position maybe in the classifieds, on the internet or in an agency. Other expenses include the recruiters and recruiters assistant, or the hiring department's expenses such as salary for time spent understanding the open position, looking through resumes, interviewing applicants, and notifying unsuccessful candidates. There are also the cost of background checks, drug test, and any required physicals. (Bliss, 2012)

Training cost can also be quite extensive. Orientation costs include items like the salary of the trainer and trainee, cost of the supplies required for orientation, and the extra supervisory cost included in managing and watching over the new employee who is unfamiliar with the new work details. (Bliss, 2012) There are also all the administrative cost of hiring a new employee from getting them set up for payroll and benefits, to getting the new employee access cards, passwords, and proper identification. (Bliss, 2012)

Additionally there are production losses as