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Actual Cost Of Employee Turnover & Ways To Improve Retention

2816 words - 12 pages

Actual Cost of Employee Turnover & Ways to Improve Retention

Steve Burton

Morrison University


Employee turnover is one of the largest problems for many organizations, yet it is one of the most unknown cost. Although employee turnover may not seem like a big deal, it is very expensive part of the business. A study done several years back showed that less than 50% of businesses had a plan to determine what turnover was actually costing them. A majority of businesses simply went on intuition alone to determine turnover cost (Blake, 2006). With a competitive mobile workforce it is crucial for businesses ...view middle of the document...

Let’s say we have 5 entry level employees making $30,000 a year, 2 mid-level managers making $75,000 a year, and 1 executive making $150,000 a year.

➢ Five entry level workers making $30,000 times that by 40%, cost of losing these five employees $60,000.

➢ Two mid-level managers making $75,000 times that by 150%, cost of losing these two employees is $225,000.

➢ One executive making $150,000 times that by 400%, cost of losing that one employee is $600,000.

All eight of these employees leave within the same year, from the same company the cost of replacing these employees is $885,000 to the business. With these types of numbers it is clear to see that company’s really need to look at this as a real concern.

Many top management do not see this as a problem simple because they do not know about it. They know about the turnover of course but they are not aware of the actual dollar cost. Many top management never see these cost because companies do not actually measure this or if they do they are not reporting it to the top management (Blake, 2006). You may think that these numbers are unrealistic but having worked in an environment personally where I have seen this type of turnover at almost the exact levels, the numbers above are very real.

So why is turnover so costly to a company? What are some factors that go into determining these cost? For way too long, many managers have underestimated the cost of employee turnover. There are several factors that need to be considered when someone quits their job and leaves the company. There are direct cost and indirect cost which need to be considered when calculating the actual cost of employee turnover. Below I have listed both direct and indirect factors to better understand the cost of employee turnover.

➢ Direct costs:

o Separation cost-exit interviews, severance package, unemployment pay

o Temporary staffing or overtime to cover employees duties

o Replacement cost-advertising, recruiting, screening applicants, interviewing, background checks and drug screens, relocations package, travel expenses.

o Management Time

o Training cost-orientation, classroom training, ramp-up period, certifications, and office set-up.

➢ Indirect costs:

o Lost productivity from departing employee

o Reduced morale

o Additional work to other employees

o New employee burning business poor job skills, bad customer service, reduced quality, and errors.

o Lost clients from prior employee leaving

o Cultural impact


I am sure there are many more factors than what I have listed above to determine the cost but these are universal factors found amongst many organizations. Several of those listed above were found from multiple sources online and my own personal insight over the years (Boushey & Glynn, 2012) (Blake, 2006) (Bersin, 2013)....

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