What Does Employee Turnover Cost You?

September 14, 2011
Posted by Link Staffing Services

Sometimes it may seem as if employee turnover actually SAVES you money, since that’s one fewer employee on the payroll for a period of time. But there are real costs—tangible and intangible—associated with replacing an employee. The cost of lost time and productivity alone could easily reach 150% of an employee’s actual compensation figure. In fact, one common formula used to calculate the total cost of turnover figures it at seven times the employee’s annualized salary. 

So what makes turnover so expensive?

There are three different sorts of costs associated with turnover: separation, vacancy and replacement. When you put them all together, they really add up.

Separation costs include all the costs related to termination, such as exit interviews and severance pay. Vacancy costs include whatever is incurred due to increased overtime or the cost of temporary employees needed to fill in. Replacement costs are all the expenses related to hiring a new employee—advertising for applicants, entrance interviews, testing, medical exams and the like. If you’d like to calculate the cost of turnover for your company, check out this worksheet from the Wisconsin Center for Community and Economic Development.

Strategic staffing and careful personnel management hold costs down.

There will always be a bit of turnover. But the sheer cost makes holding turnover down seem like a very good idea. Smart businesses avoid the high cost of turnover by staffing strategically (holding staffing levels at a point below the level of highest need), hiring carefully (choosing people likely to stay for the long haul), and managing their employees in a way that encourages longevity.

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