Recently I received an online question from one of my newsletter subscribers about quantifying turnover costs. As a HR Manager for a company located in Burlington, NC she was busily preparing for a presentation and was having difficulty sourcing information she quickly needed.
Read her testimony to get a better idea of her dilemma:
“After spending many weeks preparing a presentation of our Manager’s Meeting, it occurred to me that I had not spelled out how costly turnover can be. I was one day away from presentation time and was still preparing other areas to be covered. I emailed Becky, whom I have never communicated with other than to sign up for her newsletters, etc., and ask her if she could email me a simple explanation that I could include. I sent this email to her on a Sunday afternoon, and I had the response by that evening. It was clear and simple, exactly what I asked from her. It allowed me to continue on and still include this example in the presentation. I cannot tell you how great it was to know that I had some help me like that without ever meeting me. She is great and so is her knowledge of HR.”
It may seem contrary to discuss turnover costs in a declining economy, but employers are always in competition to attract and retain top talent. In March, Salary.com published findings from their recent survey, “The 2007/08 Employee Satisfaction and Retention Survey” producing some telling numbers regarding employee retention and turnover:
* For the third year in a row, companies are most likely to lose employees with 3-10 years of seniority, typically their most productive years of employment
* By seniority level, the percent of employees in each category that’s interested in seeking a new job:
* 62% of respondents with 1-3 years of seniority
* 63% of respondents with 3-5 years of seniority
* And, 59% of those who’ve been in their jobs for 5-10 years
Those numbers represent a TON of employees who are on the verge of leaving their companies. To build a case to present to management to begin reducing your turnover costs, first you need to quantify annual costs for your company.
In 2006/07, employers generally estimated a replacement cost of $15,000 per employee from turnover. The survey revealed that in 2008, that cost increased 40% costing an average of $21,000 per terminating employee. To get your arms around the cost of turnover in your company, follow the example I provided in response to Karen’s request:
Hypothetically, let’s assume that you have a Customer Service Representative who earns an annual salary of $35,000. She gives you two weeks’ notice of her intended departure (and typically isn’t very productive during those last two weeks). You create the job posting and advertise for about a month. Then you conduct interviews that take two weeks of your time and effort. Finally you find a good applicant and extend a job offer that’s accepted, and your new hire wants to give her current employer two weeks’ notice. From beginning to end of the recruiting process, you’ve had a vacant job for 6-8 weeks at a minimum.
To cost out the turnover expense in our example:
CSR gives you two weeks’ notice, but stops working……………………………………………….$1,346
Cost of temp to fill job for two months……………………………………………………………………… $5,833
Advertising costs……………………………………………………………………………………………………….. $200
Use of a recruiter to fill job (20% of new base salary of $37K referral fee)………………$7,400
You have to pay the new hire $2,000 more……………………………………………………………$2,000
Total, rounded up……………………………………………………………………………………………….. $16,780
You can also quantify and add your time & effort, the loss of production from having one less employee in the Customer Service Department, the cost of training your new hire and the resulting stress other employees experienced from the additional workload. Even without the headhunter expense, you’re approaching $10,000 in costs to replace this employee.
You may have also spent considerable time on an involuntary separation depending on the situation, and separation pay if it was involved. And of course, your Company’s unemployment costs increase due to higher claims.
You can see how it easily adds up. Just walk through a recent employee termination and quantify the costs of each step to develop an approximate number for benchmarking. Then multiply that number by the number of turnover in each job classification to reach your annualized cost.
And, last but not least of all, if you have a HR question you need help answering, go to http://www.reganhr.com/contact.htm too “Ask Becky.”
Copyright 2008, Regan HR, Inc.
Becky Regan, M.A., CCP began her own consulting practice in 1995, Regan HR, Inc. to provide human resources consulting services to businesses in California. She has been successful in growing her business through reputation and client referrals. Her work as a consultant includes the full spectrum of HR technical expertise, including C-level recruitment, compensation studies (design, market and executive pay studies, sales compensation plans), training & teaching, interim assignments as a HR Director for organizations, and employee relations, including workplace investigations and written responses to formal complaints. For more HR tips and to receive my FREE “The Top 5 Secrets to Building a Better Organization that Every HR Pro Must Know” go to http://www.ReganHR.com