The Actual Cost of Employee Turnover

Defining the Actual Cost of Employee Turnover

By Raphael Crawford-Marks on October 10, 2014

You know that losing a member of your staff costs you money, but do you know how much? It’s probably more than you think.

According to a recent study by the Center for American Progress, in a best case scenario, the loss of an employee who makes less than $50,000 a year will cost a business 20% of that person’s annual salary. For a more highly-skilled or senior level employee, the hit to the bottom line can be staggering, with the replacement cost reaching as much as 213 percent of the staffer’s pay.

While many of the costs of staff turnover are largely hidden, or hard to quantify, they have a huge impact on your business.

These costs include:

Loss of Productivity. Either you’ve got one job that’s not getting done, or you’ve temporarily reassigned the crucial aspects of that job to someone else, who now runs the risk of being spread too thin and making mistakes.

And finding a replacement is not the end of the costs: even when you find the perfect candidate to fill the vacancy, it can take up to two years for that person to reach the productivity of a current employee in a highly skilled job.

The Search: Placing an ad, interviewing, screening. In a small organization, these duties often fall to the head of the department with the opening. Problem is: they’re already overwhelmed and busy because they just lost a staffer, so the quality of that manager’s work is likely to suffer overall as well.

Training: Whether you send a new employee to a formal training session or rely on someone within the organization to teach the new staffer, it costs you. And you’ve lost whatever resources you put into training the person who jumped ship.

Institutional Knowledge: Knowing how to do a job is so much more than the particular duties of that role. It’s knowing how an organization works, the people, the relationships, the culture, and those are things you learn over time. That person you just lost? They took that with them. They might have inadvertently taken an understanding of filing systems, important passwords, contact information, etc. with them too.

We spend a lot of time thinking about staff turnover at Bonus.ly.

As a peer-to-peer recognition and reward system, we know that enabling people within an organization to easily reward their coworkers helps retain employees. So much so, that we developed a handy calculator to help business owners assign some hard numbers to the soft cost of employee turnover.

You can try the calculator here.

The default values preset in the calculator are industry averages. Use the averages or input your own numbers, you might arrive at a somewhat unsettling dollar amount.

The good news is that there are steps you can take to prevent your people from walking out the door.

The Center for American Progress recommends the implementation of workplace policies such as earned sick days, paid family leave, and other programs to help valuable employees balance work and family.

Younger employees are motivated by opportunities for growth and career advancement, but also feel a strong desire to work in a fun, collaborative environment with people they enjoy.

All employees, regardless of age or demographic, appreciate and respond to recognition. In one study by Bersin & Associates, organizations with recognition programs that were highly effective at improving employee engagement had a 31 percent lower voluntary turnover than those with ineffective programs. You can read more about employee engagement here. 

Employee recognition programs that provide a structure through which staffers themselves can both easily acknowledge the good work of others and select the type of “reward” they receive are adaptable to the needs of all members of an organization.

How much you pay people is just one part of why they choose to work for you. Everything else you do — that is, the kind of culture you create within your organization — is a big part of why they want to stay.

Written by Raphael Crawford-Marks

Raphael Crawford-Marks

Raphael is co-founder and CEO of Bonusly, where his focus is on creating a work environment that enables the Bonusly team to thrive.