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Growth Strategies

What is the average cost for bringing on a new employee including the interview process, hiring and training?

min read
Opinions expressed by Entrepreneur contributors are their own.
This is a very important subject as we inch closer to 2010--which is predicted by the U.S. Bureau of Labor Statistics to be when we encounter the most severe shortage of skilled workers in the history of this county. The message should be clear to employers that it just makes good sense to keep the good employees that are on board. Following are a few pertinent facts.

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 employee’s 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:
-cattracting applicants
-pre-employment administrative expenses
-entrance interviews
-aptitude, skill, drug etc. testing
-hiring decisions meetings
-post employment physical exams
-post-employment information gathering (records, payroll, etc.)
-signing bonus
-employee finder's fee

Training New Hire Costs:

-information literature (manuals, brochures, policies, etc.)
-general orientation
-job orientation

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 turnover—at least for key positions for benchmarking purposes. Then, strategies should be developed to reduce turnover and, thus, increase profitability.

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