Did you know...? American employees are on the move. Did you know, pre-pandemic, 3 million Americans a month quit their jobs to find greener pastures? In other words, just over 3 out of 10 employees left their new job before their first 6 months were up. How expensive is this volume of turnover?
While the answer does depend on whom you ask, one answer places the cost at double an employee's salary to replace them when they abandon ship. Obviously different industries will experience different costs, and in many cases, replacement costs can be much, much higher.
One such study determined the cost of replacing a salaried employee was 6 to 9 months salary on average.
For a manager making $60,000.00 a year, that’s $30,000 to $45,000 in recruiting and training expenses. After all, it's not just the salary, it's the cost to train them as a replacement, as well as overcoming the negative impact on the remaining employees' morale and productivity, both of which can adversely affect company revenue.
This typically hidden cost also varies depending on the role of the employee.
One study's average cost to replace high-turnover, low-paid employees ($30,000 per year) was pegged at 16% of annual salary. So a $10/hour retail employee would potentially cost "only" $3,328 to replace.
When replacing a midrange position, earning $30,000 to $50,000 a year, the cost jumps to 20% of the annual salary. for example, a manager earning about $40,000/year would be $8,000 to replace.
Need to replace a highly educated executive position? The potential costs rocket up as high as 213% of annual salaries! That $100K a year CEO will likely require about $213,000 to replace, if not more due to severance packages or other related costs.
Just like any other out-of-control budget, the primary factor in these types of costs remaining hidden is the lack of systems and processes to track exit costs. Areas and activities to inspect and assign a cost value to in your budget would include the following:
The Work Institute conducted a shocking study that revealed 42 million US employees voluntarily departed their jobs in 2019 – a whopping 27% of the workforce. Unfortunately, this statistic is a trend that has steadily gotten worse over the last decade. In 2018, 40 million employees left their jobs by choice, and even back then it was an 88% increase over 2010 numbers.
Take a sheet of paper and write down a list of all your employees in two columns: 1) replaceable, and 2) employees with mission-critical skills, employees who form the backbone of your business, or employees whose departure would upset you greatly. Often about 25% of all employees fall into the 2nd column - their departure would impair or even destroy the bottom line until fully replaced.
The sunny side to this situation is something can be done about it. Just being aware of these hidden costs can help a business owner be more prepared for a worst-case scenario financially. However, savvy entrepreneurs who are prepared for disasters, live instead with minor emergencies. Sign up for our free assessment interview below and discover which areas of your business are stressed and need to be shored up with documented systems, processes and implementation programs to fully onboard new and existing staff.
Personnel Matters can make your business systems-dependent, instead of people-dependent. Start today, secure your tomorrow, and achieve stability.
Lorianne Isaacson - Owner of Personnel Matters, Inc. where we empower employees and employers to achieve stability in the work place.
What Our Clients Are Saying
“I highly recommend Personnel Matters if you want and need more order, workable systems, and clearly stated policies for any division of your company. Personnel Matters helped us strengthen our procurement of willing employees and provided us with a handbook outlining policies and procedures to clearly delineate what is expected as a team member"... Arrow Rehabilitation, Palm Coast, FL