Replacing Employees Costs Big Dollars

The cost of employee turnover is alarming for many businesses. The latest statistic available from the  Employment Policy Foundation suggests the average cost of turnover to employers is $13,355 per full-time private-sector employee replaced. Keep in mind, this study was done several years ago so chances are this figure has risen considerably. Still it is enough to be troubling.

Using this figure, calculate what this could mean for a business with 100 employees and a turnover rate of just five percent a year. Such an employer would replace five employees at an average replacement cost of $13,355… for a total replacement cost of $66,775.

Now imagine if this business had a turnover rate of 20 percent. The employer would have a total replacement cost of $267,100 ($13,355 times 20).

“The loss of productivity during position vacancy and the diminished productivity during a new employee’s transition period are significant aspects of the total cost of turnover,” according to the Foundation’s President, Ed Potter. “Companies that are able to reduce their turnover rate have a significant competitive edge.”

How did the Employment Policy Foundation calculate turnover costs and arrive at the average $13,355 figure?
The Washington, DC-based research group included the price of recruiting new applicants, selecting replacements, training new employees, and lost productivity expenses caused by departing staff members and incurred by new employees.

The result pegs the turnover costs at an average of 25 percent of an employee’s annual income.

But an “average” turnover cost can be misleading. The Foundation’s study breaks the costs down by industry, to get a clearer picture.

An important question:

How do you come up with a realistic figure for turnover costs in your business? Here’s an example,

A. Annual pay for the position, $18,000
B. Annual benefits, taxes and
insurance cost for the position, $ 5,400
C. Total pay, benefits, taxes, insurance (A plus B), $23,400
D.
Percent of first year that new employee is unproductive, 25 percent
E. Cost of unproductive time (C times D ), $5,850
F.
Recruiting costs (such as advertising), $500
G. Management cost to recruit, interview, train, supervise new employee (first year hours[50]times hourly management rate, $50, $2,500
Estimated turnover cost
(E plus F plus G)………………..$ 8,850

Average Turnover By Industry
Information industry

Financial activities

Professional business services

Construction

Manufacturing

Education

Other services

Trade/ transportation

Leisure/ hospitality

$18,615

$17,315

$14,975

$13,935

$13,880

$13,020

$11,975

$11,820

$6,495

TESTIMONIALS

As we’ve grown, so have our administrative and payroll needs. That’s why we’ve partnered with HR&P. HR&P supports us every day with human resources, payroll, benefits and compliance so we can focus on being the best BB’s Cafe we can be!

Brooks Bassler, Owner, BB's Cafe

Since 2010, my company has grown to over five hundred employees. With our tremendous growth we needed a human resources and payroll company that could grow with us. That company is HR&P. And as laws have changed, like the Affordable Care Act, HR&P has kept us in compliance. I focus on growing Twin Eagle. I trust HR&P with the rest.

Chuck Watson, Chairman, Twin Eagle

We are the industry leader in Oil Spill Cleanup Products and have dealt with numerous Oil Spill disasters. Knowing up close what a disaster looks like we choose to avoid them in our offices. HR&P guides us through the land mines of HR, Payroll and Benefit compliance so my team can focus solely on helping our clients with their problems, and we avoid our own.

Chad Clay, Owner, CEP Sorbents

One of the best things we did for our business was to partner with HR&P. They’re the experts in human resources, payroll and benefits administration.
HR&P’s web based solutions make it easy for us to manage our employee’s needs. They also help us stay compliant with the Affordable Care Act and with “the alphabet soup” of constantly changing Governmental regulations.

Ken Dennard, CEO, Dennard—Lascar Associates

I run a restaurant, from early in the morning to late at night, our team works hard to deliver great food in a fun atmosphere.
But there’s a lot more to running a business like human resources, payroll, benefits and compliance. So we turn to HR&P.
Outsourcing to HR&P keeps us focused on our business.

Marcus Payavla, Co-Owner, Orleans Seafood Kitchen

RECENT POSTS

NEWSLETTER

To receive more HR articles and tips that keep you informed, sign up for our newsletter.

SIGN UP!
2018-09-11T23:56:06+00:00