Factors and Costs Associated with Employee Turnover

By: Smith Cramer

In recent articles, several important metrics related to hiring and selection have been discussed (see previous articles on quality of hire and cost-per-hire). The next logical metric is cost of turnover. How much does employee turnover cost your organization each year and are you tracking it properly? Everyone knows that turnover is expensive, but the fact is that losing employees may cost more than you realize.

CBS Money Watch says for employees making under $50,000 per year, turnover costs are estimated at around 20 percent. Other sources site estimates closer to 30 to 40 percent. For those under $30,000, the estimate drops to 16 percent. However, those jobs typically have a higher than average turnover rate. The example given is that an alarmingly high "37 percent of hotel/motel and food services employees voluntarily quit a job in 2011." Consistent turnover, even at 16 percent, adds up fast. Not as quickly as high-level positions, however. For executive-level positions, turnover costs can reach upwards of 200 percent or more of the yearly salary.

Calculating cost of turnover can be tricky and there are several factors to consider. The Society for Human Resources Management (SHRM) includes: 1) costs to off-board an employee; 2) cost-of-hire for a replacement; 3) transition costs, including opportunity costs; and 4) costs from long-term disruption to the talent pipeline. They estimate higher than other sources, stating that a commonly cited statistic would be 150 percent of the employee’s salary, while they estimate between 100 to 300 percent depending on the position.

Depending on the industry or market, certain organizations have less control over turnover than others, which should be factored in when creating employee retention strategies. Business Insider published a list of companies determined to have the highest and lowest turnover rates in 2013. To explain one of the defining differences between these lists, PayScale lead economist, Katie Bardaro stated that industries that are "hot" in an improving economy are going to be subject to higher than normal turnover. Though, overall, "If employees have more options and can easily move, they'll do it. You'll see it happening first with top performers…in this environment, companies will need to evaluate what causes employees to leave and improve these areas, such as pay, work environment, [and] vacation policies."

Another consideration is that of the top 20 companies with low tenure, the average age of employees is 40 or under for all but two companies. For the top 20 companies with high average tenure, the median age of employees is 40 or over for all but two companies.

Bardaro explains that "Gen Y essentially doesn't have the same feelings toward employers like their parents did. They saw what happened to their parents during the recession. They saw them lose their pensions and lose their jobs. Overall, employee loyalty is not what it used to be. Numerous studies have put employee loyalty to companies at an all-time low…"

All things considered, when a medium to high performing employee comes to you and asks for an increase in salary or suggests they may leave the company, it's definitely worth taking a closer look at ways to retain them. The cost in turnover or the loss of productivity from an unhappy employee could definitely outweigh a small bump in compensation.

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Traci Kingery, PHR is an HR Professional and freelance writer based in the Midwest, specializing in immigration and talent management. When she’s not improving unemployment, she keeps busy with her husband and four children. Recruiting software, Staffing Software, Onboarding Software and Application Tracking Systems for RPO, Executive Search, Staffing and Corporate Recruitment. Try our software Free!

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