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The Cost Of Employee Turnover

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the cost of employee turn overThe cost of employee turnover seems to be something businesses speak of often, but do you know what is really means?

Are businesses really accounting for everything they lose when they lose an employee, or are they just looking at the basic hard numbers?

It feels like the conversation about employee turnover is somewhat of a mystery and not a firm idea people can grasp.

Here’s a breakdown of the kinds of costs that contribute to employee turnover and how you can plan better for your employee turnover procedures.

What It Costs To Lose An Employee

It may not always be obvious what you’re spending on hiring and firing employees. When you operate a business and you lose an employee, your first thought may be “I have to do whatever I need to do to refill the position.”

The thought of having an open position in the workplace can seem stressful and the amount of dollars spent to correct the issue may not be in the forefront of your mind.

Below is a breakdown of some of the costs involved with hiring/replacing a new employee:

Employee Recruitment

When you need to replace an employee, for some companies it may be worth the fees to hire a headhunting firm. Some positions require specific qualifications and it’s worth the fees to find the right qualified person for the job.

Other times, usually for smaller businesses, the recruiting position falls on someone like a dedicated HR person, or a hiring manager. These people of course get paid for their work, and their workload has probably doubled because they’re short handed.  Time is what you’re paying for in these cases.


If you’re a smaller company, or hiring for a less complex position you may defer to the more traditional route and interview candidates. This may not come to mind when you think of the cost of employee turnover, but again it’s time spent that you’re paying for.

Someone has to put together a job listing, communicate with those who apply, look through dozens of resumes, schedule a time for them to come in, and finally have the interview.

Depending on how many candidates you get, you may want to do a few rounds of interviews to make sure you’re hiring the right person. This means going through some of the steps two or even three times.

Employee Training

Once you have a new hire you sigh in relief that the work is done, and the cost of hiring someone is over. However, you must account for the cost of training a new employee. Whether it’s a manager or an employee in the department in which you’ve hired a new employee, someone needs to train the new hire.

Their works needs to be supervised until they are fully capable to handle things on their own. That could take weeks or months depending on the position.

Furthermore, the person who’s doing the training still needs to keep up on their own workload and be productive.

Where Else Is Employee Turnover Hurting Your Business?

Where Else Is Employee Turnover Hurting Your Business?Those are some of the examples of the costs that go into replacing an employee. However, there are other areas of business that a high employee turnover can hurt your business.


Studies show that a company with an increase of turnover by 1 standard deviation contributing towards a 0.15 drop in performance. This number tends to increase the higher the turnover.

If there’s a position that’s currently empty, that’s an automatic drop in performance. However, if you try delegating tasks to other employees, you run the risk of overworking your remaining staff. Productivity levels will drop when an employee feels like they’re being stretched too thin.

Important tasks will be addressed, but multiple things will fall by the wayside and not be considered a priority. Lots of little things missed, adds up to a lot of work not being done or not accounted for.

Customer Service

Part of customer service is building relationships and trust with your customers.

Small businesses usually have better relationships with their customers then the larger companies. If you’re constantly having to turnover employees, you may be turning off your customers who like speaking to the same customer service rep all the time. The trust that you were building may start to diminish. You can’t put a number on consumer trust.

If you were to add up all the costs from everything mentioned so far in this article, you’d get a rough breakdown of the following:

  • For entry-level employees, it costs between 30-50 percent of their annual salary to replace them.
  • For mid-level employees, it costs upwards of 150 percent of their annual salary to replace them.
  • For high-level or highly specialized employees, you’re looking at 400 percent of their annual salary.

Tips To Avoid Employee Turnover

Sometimes employee turnover isn’t avoidable. If you need to fire an employee because they are doing more harm than good, then that’s what’s best for your business. However, there are some tips you learn from to help avoid employee turnover.

  1. Build relationships with your employees. They should feel apart of the team, not there to mindlessly sit at their desk like a robot.
  2. Make sure employees feel appreciated. There are multiple ways to reward employees in between raises to help make them feel good.
  3. Have open lines of communication. Streamlining performance reviews can be helpful here. Don’t wait until the end of the year to criticize everything an employee did over the past X amount of months.

If you have high employee turnover, there are some things you can review to look and see where you can make changes to help decrease the amount of employees that need to be replaced.

Keep some of these things in mind when you’re going through the hiring process to see where you can better the process for current employees. Also, don’t forget to help keep employees happy throughout the year and in between pay increases to help them feel appreciated.

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