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Employee Retention: What Does Employee Turnover Cost?

by Chrystal ValentiMarch 11, 2013 2:38 PM

You work hard to recruit and hire the best employees that you possibly can. It’s only logical that you want to keep these employees engaged, happy, and working well on your team.

Employee turnover can be an inconvenient, time-intensive challenge. But employee turnover costs even more than time: it costs money.

Costs of Employee Loss

According to the Society for Human Resource Management (SHRM) and the Center for Community and Economic Development (CCED), turn-over rates are very costly for organizations.

The costs of employee turnover are both tangible and intangible. These costs include separation costs and replacement costs.

Separation Costs

Separation costs can include:

  • Costs incurred for exit interviews
  • Administrative functions related to separation
  • Separation/severance pay
  • Increases in unemployment compensation
  • Lost productivity
  • Lowering current employee morale
  • Decreased customer service
  • Disruption to the organization’s ability to operate efficiently and effectively
  • Increased over-time or temporary employee costs
  • Loss of workgroup synergy
  • Performance differential (the loss of skills and knowledge between the separated employee and the new hire)

Replacement Costs

Replacement costs can include:

  • Attracting applicants
  • Entrance interviews
  • Employment Testing
  • Pre-employment administrative expenses
  • Medical exams, drug testing, background checks
  • Training costs

SHRM estimates that it costs $3,500.00 to replace one $8.00 per hour employee when all costs were considered. Of course, the higher the wage: the higher the turnover cost.

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Now you know the cost of employee turnover. Check back next week to learn more about how to prevent turnover by retaining great employees in Part II of this series: Employee Retention: Keeping Top Talent.

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"Buring Money," © 2008 Purpleslog, used under a Creative Commons Attribution 2.0 Generic license.

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Human Resources

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