How Much is it Really Costing You to Replace an Employee?

quitAre you filling the same job you just hired for 6 months ago?  What’s going on?  Your office has been fully staffed for several months now and everything seems to be running smoothly.  Today, one of your employees gave notice because they’ve found employment elsewhere.  Is this normal for you?  Do you find yourself hiring for the same position every few months?  If so, the turnover could be costing you more than you think!

These days most employees last 12-18 months in non-management positions within an organization. 

So where does that leave you?   …Spinning your wheels starting the hiring process yet again, I bet.

What is it really costing you with replace an employee?  The average cost of replacing an employee is 16% of their annual salary.  In dollar terms, an employee who makes $30,000 will cost you approximately $4,800 to replace them.  I bet you didn’t think it would cost that much!

The direct costs of recruiting on your own are fairly simple.  These would include things such as:

  • Print, email, online advertising and job fairs.
  • Credit check, background check and employment verification costs.
  • Human Resource overhead for screening applicants, test administration and interviewing candidates.
  • Additional fees for signing bonuses or relocation costs.
  • Training costs for orientation, classroom training, or certifications and licensing.

Indirect costs can include, but aren’t limited to:

  • Less productivity from staff due to the loss of the exiting employee.
  • Drop in morale with staff who are coping with the vacancy and additional work being delegated.
  • Overtime to compensate for the loss in staff.
  • Lost clientele/loss of business due to lack of staff support to keep up with current workload.
  • Hiring out of desperation to maintain production rather than making a smart hire.

What if you’re replacing 10% of your staff each year?  With a staff of 50 employees who earn individually $30,000, you would spend approximately $24,000 per year to replace 10% of your employees!  OUCH!!!  I don’t know about you, but I could not imagine a company who would not want to reduce expenses by $24,000 a year!

What can you do to reduce employee turnover and retain current staff?

Salary and Benefits:  Don’t fall behind market standards.  Re-evaluate your compensation packages and pay competitively, especially with hard-to-find employees.   Keep in mind, benefits are not only comprised of medical, dental, life insurance, and 401k, they also include bonus potential, paid holidays and vacation days.

Paid Perks:  The list of paid perks can go on and on, but at the top you’ll find things such as company supplied vehicle, tuition reimbursement, professional association memberships, training for licensing or certifications, gym memberships, on-site child care, and company branded clothing for little or no-cost.

Free Perks:   Offering free perks won’t cost you a dime!  Casual dress, flexible work hours, telecommuting options, first chance for lateral moves/promotions, a family-friendly workplace, or the larger office/cubicle with the window don’t require much effort on your part.

Employee Rewards:  Money typically talks when rewarding employees (i.e. bonuses, raises, stock options, etc.), but it doesn’t always have to be done on a large-scale basis.  You can quickly and effectively reward an achievement with something as small as a $5 gift card or donuts for the team who reached a particular goal.  Try recognizing the employee achievement with a heartfelt announcement to the entire department or company.  A simple “thank you” from top executives can boost employee morale.

Be creative in keeping your employees motivated!

Conclusion?  We all know the costs associated with replacing an employee can be significant.  Unfortunately, it is not realistic to think that there is a remedy to completely eliminate employee turnover.  However given the costs, a company should first hire smart (not fast) then motivate employees with positive reinforcement.  Design your retention efforts to boost employee retention and maintain a stable workforce which makes good business sense and cents!

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