Employee Turnover – What is the Cost of Employee Turnover?

By Tony DiRico, Profit Hunters

Most business leaders may not be keenly aware of what turnover is costing their organization. Some companies have added a line item on their P&Ls for “Turnover Cost” to make everyone aware of the impact of turnover is having their profitability. Knowing how big of a problem one has goes a long way towards helping you solve it. Most owners/managers know that employee turnover is costly, but few have ever put the pencil to it, because they are not sure what costs to include. Below is a helpful guide to help you determine your actual cost of employee turnover. When you are done, ask yourself what should we be willing to invest to reduce this expense. If you have a $50,000 problem and testing will reduce it by 30 – 50%, doesn’t it make sense to invest $125 – $199 per applicant to recoup $3,625 – $10,000 per employee? Testing represents one of the best Return on Investments (ROI) a company can make.

A conservative estimate of the cost of turnover for hourly employees is 25 percent of their annual salary. A search for studies about costs associated with hiring and employee turnover places the actual expense closer to 50 percent for hourly employees—and many times higher for management, professional, sales, and other key positions—when you consider lost opportunity costs, lost productivity and even theft, absenteeism and other counterproductive and disruptive behaviors.

High turnover costs are not isolated to big business. A small business paying an employee an hourly wage as low as $7.25 per hour incurs the minimum cost of $3,625.00 (25% x $14,500.00) every time an employee leave voluntarily or involuntarily. Other examples of turnover costs are:

· $9.00 per hour = $4,500.00 per employee
· $10.00 per hour = $5,000.00 per employee
· $15.00 per hour = $7,500.00 per employee
· $20.00 per hour = $10,000.00 per employee

While those are the costs for hourly wage employees, salaried employee turnover costs range from 1.5 times annual salary to upwards of 14 times annual salary.

There are numerous sources regarding the cost of turnover. Here are a couple of them for your reference also I have attached two PDF files whereby you, owners and managers can calculate their own turnover cost. One for Management Staff and one for Production (hourly staff) employees. Hope you find this information useful.

See chart below:

Source	Turnover cost, $8 / hr. employee	Documentation – Supporting material
Society Human Resource Management	$3,500.00	Uncovering turnover costs can be a wake-up call, as it was for Walter Kalinowski, director of HR for a company with 53 truck plazas. “We were hiring 200 employees per pay period. It was out of control. We had trouble finding people.” After hiring a consultant, he discovered his per-employee turnover cost was $3,500.
American Management Association	$4,000.00	The cost of hiring and training a new employee can vary from 25 percent to 200 percent of annual compensation. Costs include customer service disruption, emotional costs, loss of morale, burnout/absenteeism among remaining employees, loss of experience, continuity, and “corporate memory.”
Coca-Cola Retailing Research Council	$3,637.00	A major study of the employee turnover problem in the supermarket industry estimated total direct and indirect costs of replacing a supermarket cashier earning $6.50 per hour was at least $3,637. Click for Article
Advance Online – Merion Publications	$5,333.00	According to the U.S. Department of Labor, it costs one-third of a new hire’s annual salary to replace them. Direct costs include advertising, sign on bonuses, headhunter fees and overtime. Indirect costs include recruitment, selection and training and decreased productivity while current employees pick up the slack.

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