How Much Does Employee Turnover Cost?

Retaining loyal, hard-working employees is increasingly important in today’s world where jobs and large corporations are many. Especially for smaller business that lack the budget and funds to compete with higher paying wages that large corporations might offer. This creates an opening for these small businesses to offer competitive PTO/vacation and benefits policy.

Not only does frequent employee turnover cause a negative impact on company productivity and morale, but it can end up costing the company more money to continuously replace employees than it would to offer competitive pay and benefits to its staff. This rings especially true for VIP level employees with higher paying wages.

A CAP study found average costs to replace an employee are:

• It costs a company 16 percent of annual salary for high-turnover, low-paying jobs (earning under $30,000 a year).

For example, the cost to replace a $10/hour retail employee would be $3,328.

• It costs a company 20 percent of annual salary for mid-range positions (earning $30,000 to $50,000 a year). 

For example, the cost to replace a $40k manager would be $8,000.

• It costs a company up to 213 percent of annual salary for highly educated executive positions. 

For example, the cost to replace a $100k CEO is $213,000.

Employers often think that they will save money by offering a lower wage and mediocre benefits. However, that is quite the opposite. Employees today are looking for competitive wages and impressive benefits alongside a great culture to work in.

As generations shift, so do employment patterns. In 2018 – according to a study from the Work Institute – almost 42 million US employees voluntarily left their jobs. That is an 88% increase since 2010.

So why don’t employers realize this shift and change their outlook on employment? Most of the time it’s because businesses don’t have a tangible way to track their turnover. It would take a combined effort between an accounting and HR team to measure the costs of losing and re-hiring an employee. For example:

• The cost of advertising, screening and interviewing for a position
• Cost of on-boarding that employee
• Loss in productivity from losing the position
• Customer service complaints and errors

Those are simply financial losses. You also must consider the cultural impact that losing an employee has on a company. When an employee quits, your other employees are going to ask why, causing them to question their own employment with the company.

So, what can businesses do to retain their employees? They can offer competitive wages and benefits, conduct exit interviews for employees that do leave and take their feedback seriously; making changes to the overall culture and workplace. Implement a health benefit program and don’t just assume that their employees are happy in their jobs. In the long run, employers benefit more by working hard to retain the good employees that they have.