In the human resources industry, we often quote the statistic that it costs an employer 60% of someone’s salary to replace them. That’s an average statistic for the cost of turnover, so it will be less for some employees and more for others. But it’s a measurable number and one that has been studied and analyzed many times by the HR industry.
Let’s look at what’s involved in replacing an employee who leaves your company and why employee retention matters.
Interim coverage of tasks
As soon as that employee walks out the door, someone’s time has to be invested to cover the work they were doing. You might choose to split that person’s tasks among several people or you might choose to hire a temporary employee. But either way, there’s a cost to absorbing those tasks elsewhere.
Recruiting and hiring
From a straight numbers perspective, you’re likely going to pay a higher salary for a new person you hire than you were the person who left. If the person who left had been with the company for a long period of time, you’ll probably have to pay an even higher amount for a competitive new hire.
The process of finding and hiring a new employee takes time. Some of that time is already factored in as part of someone’s job, whether that’s an HR person or a manager. But it still requires a time investment. And if you’re doing a lot of recruiting and hiring because you have poor retention rates, you’re losing money in the process.
Onboarding and training
The person who left the position was likely more efficient at the job than the brand new person you’ve hired. Even if your new hire has extensive experience in similar roles, every company is a little (or a lot) different in how they do things. So it takes time for a new employee to get up to speed and build their own efficiencies. That means they won’t get as much work done in the same amount of time, which could mean other people are still covering certain tasks for a while.
One way to help measure the cost of turnover in your business is to track the hours involved for covering tasks, recruiting, interviewing, and training a new employee. Then multiple those hours by the hourly rate of the people doing them and see how much it costs in directly measurable effort.
Now think about why employees leave your company. Do they leave for higher-paying positions? For more vacation or better benefits? When you really do the math, could you invest the money you’re spending on turnover into better pay or benefits and increase your employee retention rate?
If you’re concerned about the turnover rate in your company and the cost involved, contact us today to discuss how we can help.