When turnover is high, the costs are even higher.
The new speed of business often requires companies to change their labor needs rapidly, sometimes overnight. Companies with large permanent headcounts are frequently forced to answer this challenge through layoffs. These are stressful, costly events for both employees and businesses alike. But in this new agile economy, headcounts expand just as rapidly as they contract. When your company is ready to expand, the costs of replacing a workforce to support a new product or business line may put a sizable dent in your bottom line.
A 2012 study by the Center for American Progress reviewed 30 case studies on the cost of employee turnover. The results were staggering: the cost of replacing an employee earning $75,000 or less — or 9 in 10 American workers — adds up to 20 percent of their annual salary.
This estimate includes the costs of hiring, training, and low productivity during the employee’s first days or weeks on the job.
And yet, training comes with its own unquantifiable costs. According to UniversalGiving CEO Pamela Hawley, employee morale can be decimated — taking productivity with it — if weeks and months spent training the wrong hire all prove futile:
“The cost of a wrong hire can be thousands, if not hundreds of thousands, of dollars. You’ve spent the time training, then there is a vacuum in your organization when they go. You’ve spent 3, 4, 6 months of your employees’ time … getting someone up to speed. Then your employees need to get someone new up to speed. But first, they have to begin the rehiring process, again. More money. More time. More weight on the organization.
And don’t forget the morale cost. This is where it is most heavy on the team, and we have to be considerate of our people. We should respect the energy and investment of their time.”
Hiring. Training. Releasing. Hiring. Training. What does this all add up to?
Employing a full-time hire costs more than 50 percent of their annual salary. Replacing that hire costs an additional 20 percent. That brings the total for replacing a permanent hire making $75,000 to $130,000 per year.