The Cost of Employee Turnover

The rate at which employees come and go is called turnover. Ideally, the majority will come and stay. Realistically, this may not be the case. It is impressive when a company has a high number of employees who have been there for ten or more years. If the majority of employees aren't sticking around for their first-year anniversary, it's time to re-evaluate the company's recruiting and hiring practices.

When an employee leaves he needs to be replaced, and there is an expense that goes along with this. The time and investment put into that employee will no longer benefit the company and it's time to start from scratch with someone new. A revolving door is a part of doing business, but it's how fast the employees are traveling through that door that sets the pace for employee retention.

Here are some of the costs of replacing an employee:

  • Administrative costs associated with COBRA paperwork, processing a final paycheck to arrive in time, and other separation issues.

  • Employment advertisements. This includes the wages paid to the person who writes and places the ad as well as the actual advertisement.

  • Time is money. The time spent reviewing applications and interviewing candidates is money spent.

  • Background checks and pre-employment screenings are additional expenses if it's part of your hiring practices.

  • The wages paid to the employee who trains the new employee and his lost productivity as a result.

  • Waiting for the new employee to get up to speed and meet performance expectations. Profits may go down during this period.

This is why employee-retention efforts are so important, but you can never expect a zero turnover rate. Life events come up that cause an employee to leave, such as a family relocation, staying home to raise a new baby, or taking care of a sick relative. And of course, people retire. These things will continue to happen no matter how terrific an employment opportunity you provide, but for the issues you can influence, like employees being dissatisfied and seeking work elsewhere, there are some things you can do.

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