How do you calculate the cost of employee turnover?
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You're always hearing about the high cost of employee turnover, but such costs are usually described with generic terms like “$X per employee” or “X% of annual salary.” What's important to remember is that these numbers are based on averages, and the actual dollar amounts and percentages will vary according to your particular organization, department, or team.
In order to figure out exactly how much you're paying every time you have to replace an employee, you have to know the specific costs of things such as job postings, recruiter or staffing agency fees, background checks and drug testing, and other assessments that might be required before hiring. Then you have to factor in the following:
- the number of weeks that the employee will work your organization before they leave—which unfortunately will probably be at about 50–75 percent productivity.
- the number of hours that person's coworkers and manager/supervisor will have to put in covering the departing employee's work, both before and after departure—which means their own work is probably not being completed.
If you calculate how much each of those people is making per hour (even if they're being paid a salary), you can multiply the number of weeks times the hours per week times the hourly rate to start off your additional costs.
Until you fill the vacant position, you'll be spending money on the time that coworkers and the manager/supervisor combined will need to make up for the vacant employee, whether through overtime or added shifts. Again, multiply the number of weeks times the hours per week times the hourly rate, per person, to add to your rising costs.
Once you hire someone, use the same formula for the new employee plus everyone involved in training and onboarding. Those costs are racking up!
Don't forget about the lost productivity for your current employees who are taking time off from their usual responsibilities to participate in orientation and training.
If you don't have a dedicated HR department, someone at your company, possibly someone on your team, will have to devote several hours to separation processing, making changes to the schedule, screening resumes, checking references, interviewing candidates, and setting up onboarding and processing. How much are each of those hours worth?
When you have actual numbers to crunch, you can see the actual costs of replacing an employee, so doesn’t it make sense to try to keep as many employees as possible? Employee retention isn’t just a catch phrase, it’s a real issue that can drain your profits if it’s not addressed.
At Complete Payroll, we are committed to helping our clients with payroll and we also help with human resources management. Please call us today for more information.