Employee Turnover – Losing Money is Just the Beginning

There are many costs associated with employee turnover from the exit interview to the cost of interviewing and bringing on the employee’s replacement. Kathryn Jackson, Ph.D. with Response Design Corporation, a firm specializing in call centers, has this to say about the cost of turnover, “No matter how detailed your list of the costs of turnover, remember that turnover is like an iceberg floating in the water. So much of its deadly presence is submerged, hidden from sight.” The financial costs are just the tip of this iceberg. Here are some costs related to losing an employee:

Tangible costs

• The national rate of employee turnover is 14.4% annually according
  to the Bureau of National Affairs
  
• At the former minimum wage, it still cost $3,700 to replace one employee. If you lose one employee each month, that is a cost
  of over $40,000 per year
  
• The average replacement cost for an employee is 1/3 of his
  or her salary
  
• An employee leaves with knowledge gained at your expense. It's estimated that up to 50% of an employee’s salary is lost in knowledge alone. This figure increases by 10% for each year an employee was
  with your company. In a competitive industry, this loss is like giving money and free advice to competitors

Intangible costs

• Morale – The morale of those left behind after a fellow employee leaves can suffer greatly. Employees who have lost a fellow colleague may share some of his or her negative feelings if the employee left due
  to conditions at the firm
  
• Stress – The additional stress put on employees as they pick up the slack for the colleague who left can be great. Instead of getting more done, this stress may result in less productivity. Plus, the departed employee can be like the elephant in the room that causes stress and strain among remaining staff
  
• Customer Loyalty – If you have a customer based business, losing
  a key employee may mean losing customers as well. Frequently, customers are loyal to people in the company, not the company itself.
  It is estimated that financial advisors who leave will take as many
  as 1/3 of their customers with them

At first glance, the cost of turnover may seem like a static, one time cost involved with replacing the employee. In reality, the cost of turnover can be like a small wave that turns into a crashing wave as it picks up momentum. The increased stress and lowered morale of employees who remain can cost your company in terms of lowered productivity and an unhappy work environment. For many companies, the cost of replacing employees is a wake up call to use that money instead to keep them there in the first place.

Sources cited and consulted for this article:

“Overturn the High Cost of Employee Turnover” by Kathryn E. Jackson, Ph.D. Date accessed: 10-22-07

“'Hidden Costs' of Turnover Can Greatly Exceed Numerical Calculations” n.htm Date accessed: 10-19-07