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What Does Employee Turnover Really Cost? (part 1)

Posted by Anh Mai on Mar 23, 2012 11:43:00 AM

turnover cost10 Initial Costs Due to an Employee Leaving

It’s a busy time in the workplace. Projects are underway. Deadlines are approaching. Sales quotas need to be met. And managers and employees need to be as productive as possible. In the midst of all the activity, organizations always face speed bumps – a major one being: employee turnover.

Employee turnover is a natural occurrence in the business world. But it can also be a costly one. There are several areas that contribute to the high cost of employee turnover.

Let’s look at where the first dollars are spent when an employee leaves and a company is suddenly faced with an empty position.

  1. The cost of performing the job duties of the newly vacant position. Just because the employee left doesn’t mean their work did. Whether it’s a temporary person or an existing employee adding the duties to their workload, the job still needs to get done. These costs could include overtime pay. 

  2. The cost of the exit interview. This includes the time of the current employee conducting the interview, the time of the person leaving, the administrative costs of stopping payroll, benefit deductions and benefit enrollments, and the cost of various forms needed to process the resigning employee.  

  3. The cost of management. Now that there is a vacant position, the manager has to take time to understand what work remains and how to allocate that work until a replacement is found.   

  4. The cost of training the organization paid for the employee that is leaving. This includes any internal training, external training, academic education, and licenses or certificates the company helped the employee obtain. 

  5. The impact on departmental productivity. An empty chair in the meeting room means more work for the rest of the team members. Deadlines get pushed back and more time is spent discussing and rearranging priorities.   

  6. The cost of severance and benefits. Depending on different organizations and job agreements, companies could be entitled to pay leaving employees a continued compensation.

  7. The cost of knowledge, skills and contacts the employee leaving is taking with them. Depending on how long the person was in the position, the experience and networking gained are sure to be incredible resources, resources the organization will have to calculate as lost.

  8. The cost of unemployment insurance premiums. If the person leaving claims unemployment, the company will have to spend time preparing for an unemployment hearing or pay a third party to handle it. Either way, it adds to the turnover costs.

  9. The cost of losing customers. The employee leaving may take their customers with them which results in a loss of profit. Or it could cost the company more to try and retain those customers.

  10. The time the position is empty. The longer the job is vacant, the more money it’s costing the organization, and not to mention loss in productivity!    

    Source: Profiles International

As you can start to see, employee turnover costs can reach high-dollar amounts, potentially hurting your business. And these are only the initial costs. Stay tuned for a later post about the recruitment costs that contribute to employee turnover expenses. If you need to reduce turnover of key positions in your organization as soon as possible, we encourage you to test drive our ProfileXT assessment now - 100% risk free.

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Topics: Workplace Management, Team Management, Employee Retention

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