Analyzing Employee Turnover Costs and Strategies for Retention

Does your firm calculate the cost of employee turnover?

In my experience, those firms that are aware of the real cost of turnover make more of an effort to encourage staff to stay. As a percentage of salary, what would an average figure be for your firm?

Many thanks,
Col

www.colbrown.co.uk

The figures for the cost of employee turnover do vary. For managers and professionals, you can anticipate them being in excess of a year's salary for a good employee. In some cases, 150% of salary is a realistic figure. For manual workers, 50% of salary might be a reasonable estimate. In the UK, very few companies take the trouble to calculate the real cost of turnover.

Col
www.colbrown.co.uk

Dear Colleagues,

When we talk about the cost of Employee Turnover, we should look beyond physical monetary implications. Things to consider should include, but are not limited to, the following:

- Cost of administering resignation letters and documentations
- Recruitment cost for replacement: adverts placed in periodicals
- Cost of Selection and the time it would consume from staffers
- Cost of getting a relief officer as a stop-gap
- Cost of administering the recruitment and selection process
- Cost of Induction training for new employees
- Cost of employment itself: higher salary, official car, etc.
- And at times, cost of litigation depending on the mode of departure of the employee.

On the whole, we as practitioners should try as much as possible to find ways of retaining our workforce.

Thanks

Visit my free download web page (link no longer exists) and download the "Free Download No. 4: Cost of Turnover Workbook" Excel workbook. The cost of replacing employees can be quite high.

Dear Colleagues,

It was quite an interesting experience visiting Bob Gately's website. I downloaded the Employee Turnover guide he promised, which I found very useful and crucial.

An interesting comparison could be made by calling it "Motivation Tied To Career Anchor." I believe a visit by other members would greatly benefit us, exposing us to different perspectives, especially from consultants.

Thank you.

Dear Col,

The company I am working for has a comparatively very high turnover rate compared to other companies in the same industry. I have calculated the cost of turnover using 90% of the salary (the figure comes in billions). However, our company feels that as long as it can recruit new and bright people, it's okay, as the recruitment cost is lower than the cost incurred for the growth of employees. Is this the right mindset? If not, how can I, as an HR Executive, change the mindset of my superiors in the HR Department and others?

Can you help?
Pranati

Hello Pranati:

The recruitment cost is lower than the cost incurred for the growth of an employee. The cost to hire an employee is a small fraction of the cost to replace an employee.

Is this the right mindset?

No. Perhaps they don't understand the cost of employee turnover.

If it's not, how can I, as an HR Executive, change the mindset of my superiors in the HR Department and others... Can you help?

You can visit my free download webpage, "http://tinyurl.com/dvlta," and download the free Excel workbooks on the Cost of Turnover to estimate the cost of replacing employees.

For example:

A 2,500-employee financial services firm used our Business Costs and Impacts of Turnover workbook to calculate the cost of replacing their customer service representatives. They were surprised to find that it cost $72,000 to replace a $48,000 per year customer service representative. They were replacing 200 per year at an annual cost of $14,400,000. Who said turnover was not costly?

Hiring employees who fail to become successful is a costly business practice that can be avoided. Check out the "10 Steps to Increase Employee Retention and Productivity" at "http://tinyurl.com/9t6jh."

Hi,

Let me know if this method of calculating the Annual Employee Turnover works for you...

Type - I:

To measure employee turnover accurately, the preferred approach is a rolling method, i.e., calculating the annualized turnover rate. Track turnover monthly and annually but always compute it annualized. This annualized figure provides a consistent basis for comparison and trending.

Employee Turnover = Total number of agents exiting the job during the period X 12
Average number of agents during the period X number of months in the period

Average Number of agents = Full Balance of HR strength for all the months in the period
(during the period) Number of months in the period

e.g. If the total turnover for the 3-month period of Jan-Mar is 10, and the average monthly staff is 100, then the annualized turnover is 40% = (10/100) X (12/3)

Type - II:

Employee turnover = Total number of agents leaving the call center in a month X 12
Number of agents at the end of the month

Type - III:

Employee turnover = Total number of agents leaving the call center during the period
Number of agents at the beginning of the period

Usually, the time period is one year. Also, the total number of agents leaving includes voluntary, involuntary, and internally transferred agents. However, there are times when you may want to exclude transferred and/or terminated agents.

(Number of people left in a period/Average number of employees in a period) X 100

(Number of Separations/Mid-Month Employment) X 100

(Number of Resignations/Current Manpower) X 100

(Total Number of people left voluntarily in a period/Average number of people employed in that period) X 100

Long Service Stability Rate = Total number of employees with 1 year or more of service X 100
Average number of employees at the start of that period

Fringe Turnover Rate = Number of employees joining and leaving within 1 year X 100
Average number of employees in 1 year

We can similarly calculate the employee turnover with respect to Sex, Age Groups, Type of Employees, Employment Levels, etc.

Regards,

Soumya Shankar

When an employee walks away, the very first cost comes from the replacement. But replacing is not only about filling a vacancy. It is just the tip of the iceberg. Believe it or not, employee turnover costs more than you think.

A study by ERE Media found that the cost of replacing employees varies a lot by their levels:
- Cost of replacing entry-level employees: 30-50% of their annual salary
- Cost of replacing mid-level employees: 150% of their annual salary
- Cost of replacing high-level or highly specialized employees: 400% of their annual salary

These following costs always go along with each replacement:
- Cost of recruiting
- Cost of onboarding
- Cost of training
- Cost of lost productivity
- Cost of decreased employee morale
- Cost of customer dissatisfaction

I also wrote an article about this issue "The Real Cost of Employee Turnover You May Never Think About" available at [URL="http://vnmanpower.com/en/real-cost-of-employee-turnover-bl300.html"]

Hope this helps.