The real cost of employee turnover is much more than most people realise.
A business with 50 employees can, on average, expect to have 10 resignations per year (depending on the industry).
So what is the actual cost of replacing this person?
Employee on $35,000
Total direct and indirect cost if this employee leaves within 12 months of hiring are estimated at $17,750, just over 50% of salary.
Direct costs amount to $8250 -
- Advertising $1800
- Consultant fee of 15% = $5250
- Selection process — such as interpreting test results — $700
- Formal training/induction $500)
Indirect costs come to $5900 -
- Interviewing time $300 for three applicants
- Informal training by managers and peers $3700
- Productivity until new employee reaches normal performance level after about 20 days $1900
If the employee leaves within the first 12 months, extra costs amount to $3600 (payout based on four weeks’ pay $2900, performance management activities, such as meetings $700).
Employee on $60,000
Total costs if this employee leaves within 12 months are estimated at $33,000, or 55% of salary.
Direct costs come to $15,900 -
- Advertising $2,700
- Consultant fee of 18%=$10,800
- Selection process $900
- Formal training/induction $1500).
Indirect costs are $10,700
- Interviewing time $700
- Informal training $6700
- Productivity loss $3300).
If the employee leaves during the first 12 months, add $6400 (four weeks’ pay of $5000, performance management costs $1400).
Employee on $150,000
Total costs if this employee leaves within 12 months are estimated at $98,800, about 66% of salary.
Direct costs amount to $57,000 -
- Consultant fee of 30%=$50,000
- Selection process $2000
- Formal training/induction $5000
Indirect costs total $26,000 -
- Interviewing time $950
- Informal training $16,850
- Productivity loss $8200
If this employee leaves during the first 12 months, the extra costs are $15,800 (four weeks’ pay $12,500, performance management costs $3300).
Anyone still think retention strategies are a waste of time and resources?