According to John Dooney, manager of strategic research at the Society for Human Resource Management, if no other employee leaves due to the departure of the original departing employee, the cost of losing an employee is about 38 percent of the departing employees annual wage. If another employee of similar rank/pay leaves the percentage doubles. Here are some key factors to use in calculating the cost of turnover:
Separation Processing Costs:
-exit interviewer's time
-departing employee's time
-administrative functions relating to the departure
-separation pay associated with the departure
-unemployment tax related to the departure
Replacement Hiring Costs:
-pre-employment administrative expenses
-aptitude, skill, drug etc. testing
-hiring decisions meetings
-post employment physical exams
-post-employment information gathering (records, payroll, etc.)
-employee finder's fee
Training New Hire Costs:
-information literature (manuals, brochures, policies, etc.)
Lost Productivity and Lost Business Costs:
-additional overtime to cover the vacancy wages and benefits saved due to the vacancy
-performance differential while new employee gets up to speed
-low morale-related time wasted due to "water cooler grumbling"
-lost customers, sales, profits due to the departure
In summary, employee turnover takes a powerfully negative toll on the bottom line. Every company should calculate its rate of turnover and the cost of turnoverat least for key positions for benchmarking purposes. Then, strategies should be developed to reduce turnover and, thus, increase profitability.
Penny is a seasoned human resources executive and consultant with over 25 years of diverse business experience in advising enterprise leaders on employment-related matters.