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.