If you want your business to thrive in today’s economy, it’s more important than ever to find the best employees in a pool full of applicants. Retaining a good employee once you bring one on board takes some work, but it’s worth the effort because the average financial cost of employee turnover is often significant. Employee turnover comes with a measurable financial cost, but just how much is it?
Employee Turnover Costs
The cost of employee turnover varies depending on your business, industry, and the type of income the worker received. When we calculate the cost of employee turnover, it’s important to take a variety of factors into account.
Some of the various factors include:
- Recruiting employees
- Hiring the right employee after selecting from a list of available candidates
- Onboarding the employee once you’ve hired them
Without a quality candidate identification process, you also may wind up with the wrong pool of candidate employees from which to select. Not having the right candidates for one of your open positions is yet another factor that will increase the average financial cost of employee turnover.
We’ll start with hourly employees since these workers typically have the highest rate of turnover. The Center for Hospitality Research at Cornell once conducted a study that determined the average cost of employee turnover for hourly employees is about $5,000. This includes the costs associated with pre-departure, recruitment, selection, orientation and training, and productivity loss.
When salaried employees leave their employers, the costs that subsequently arise aren’t trivial. Many analysts estimate the financial cost of employee turnover at an average of 6 to 9 months of that turned-over position’s salary.
For example, if you lose an employee who earns $60,000 annually, expect it to cost between $30,000 and $45,000 to backfill their position. Lose 50 such $60,000 employees annually, and you’re looking at $1.5 million to $2.25 million in financial costs due to employee turnover, at minimum.
Time Lost Due to Turnover
Also, keep in mind that the time lost due to employee turnover. According to a December 2017 study by the Society for Human Resource Management, it takes an average of 36 days to hire an employee.
The length of time needed to hire employees varies by industry, though. For instance, in 2017, the Chicago Booth School of Business found that it took an average of 13.4 working days to hire an employee in the construction industry. In the healthcare industry, however, it took as long as 48.3 working days to hire a suitable employee.
The longer one of your employee positions goes unfilled, the greater the financial burden can become for your business. The below examples of industries with the longest hiring processes will give you an idea of the potential costs attached to employee turnover:
- Financial services: 46.2 working days
- Information: 31.8 working days
- Education: 28.9 working days
- Wholesale and retail trade: 25.8 working days
- Leisure and hospitality: 21.1 working days
If you’re in government at any level and you need to hire someone, expect the hiring process to take about 28.5 days, though it can take much longer in some cases. Here’s an example:
According to a March 2019 report by the Department of Homeland Security, it takes the Transportation Security Administration (TSA) 183 days to hire a screener to staff one of its airport security checkpoints. It’s difficult to imagine any non-government business thriving if it takes more than six months to hire an employee to fill an open position.
There are tangible as well as intangible costs associated with leaving an open employee position unfilled for more than a month or for any length of time, for that matter. Other employees may need to pick up a departed employee’s work output, for one. For another, some amount of business may be lost or given up until a new employee can be hired.
Employee Turnover Cost Calculators
The beauty of data when it’s used properly by business managers and leaders, as well as human resources professionals, is that you’ll gain solid insights into just where your business is at and where it may need to go. A good employee turnover cost calculator is a tool you can use to gauge what such employee turnover, or “churn,” is costing your business. Generally, an employee turnover cost calculator allows you to:
- Calculate employee turnover rates.
- Determine certain costs from lost staff.
- Build a good business plan that allows you to anticipate some amount of employee turnover.
- Be better prepared for voluntary employee terminations.
Reduce Employee Turnover With Sprockets
The truth is that if your business is composed of more than one person, you’ll have to deal with employee turnover. Luckily, Sprockets’ AI-powered solution reduces the number of candidates your company will need to screen or interview by highlighting the employees who will be the best fits based on the success profile of your current top-performing workers.
You’ll instantly know which applicants will succeed and stay long-term, helping you avoid the financial costs of employee turnover. Contact us today to see how we can help your company reduce employee turnover!