In a weak economy with high unemployment, it’s easy to lower the priority of retention, employment brand etc. Here is a quick review of the business case and financials.
You can use the following information to develop a company-specific spreadsheet to estimate your turnover and retention costs. CPS does not guarantee that this list is complete.
The 2008 WIR report begins the cost of staff turnover at 1.5 x annual salary. Please let me know if you would like to see that report. Email: Glynis[@]glynis.com
Turnover includes both direct / measurable costs, and indirect / hidden costs. Both will show up on your bottom line.
The following calculation assumes that your employee gave you two weeks notice. You also had two weeks of job vacancy, which you covered with a temp employee.
You can estimate hourly employee salary costs the easy way: Hourly employee cost = annual salary divided by 1000.
Calculating hourly rates: the average employee in the US works about 2,000 hours each year. Add benefits, payroll costs, and the various other costs of having an employee (people have this habit of needing break-rooms, coffee and bathrooms that businesses have to pay for). Employee time therefore costs out around annual salary divided by 1000. (CPS always reminds our clients of this, when one of the Counties pay for our services: we’re not really free – you’re also investing!)
So what is your turnover going to cost, for the average employee?
Direct Costs
Termination of outgoing employee
• Termination processing – administrative support: 0.5 hour, HR rate
• Temination processing – management: 2 hours, management rate
• Exit interviews – human resources staff and/or external consultant: 1 hour
• Severance pay: $?
• Accrued vacation: $?
• Continued benefits: $?
Vacancy period
• HR liaison with temp agency: 2 hours, HR rate
• Temporary help – 40 hours wages @ $
• Temp agency service commission @ $
• Accounting: checking details and payment of temp agency: 0.5 hours, (A/c admin rate
• Alternative: Overtime for co-workers @ 80 hours
Recruitment
• Writing and placing job ad: 1 hour, HR rate
• Running job ad @ $ (Web and/or print options)
• Alternative: Third party recruiter fees @ $
• Other (e.g. referral bonus) @ $
• Administering and monitoring recruiting process: 2 hours HR rate
Selection and hiring
• Application screening: 0.5 – 3 hours, HR rate
• Interviewing: 3 – ? hours, HR and management rates
• Reference check: 1.5 hours +, HR rate
• Job offer and negotiations (job level dependent): 0.5 + hours, HR rate
• Finalizing employee contract: 0.5 – 1 hour
• Relocation cost? $?
• Other (e.g. signing bonus)? $?
On-boarding, orientation and training
• New hire processing (e.g. benefits set up): 1 – 2 hours, HR rate
• Orientation: 2 hours, HR rate + employee (new hire) rate
• Orientation materials such as employee literature @ $?
• Uniforms, company shirts, stationery, computer software and setups, equipment @ $?
• On-boarding, in-house training, coaching @ 40 hours + (employee time)
• On-boarding, in-house training, coaching: ? hours at trainer/mentor/buddy/management rate (depending on class size, shadowing etc.
• Training materials, equipment and other costs @ $?
• External training @ $?
• Other (e.g. licensing, certification fees depending on industry)
Total of Common Direct Costs
Indirect Costs
• Lost productivity of incumbent, prior to departure (estimate: 2 weeks prior to departure): 50%, 40 hours, employee rate
• Lost productivity of co-workers or subordinates (estimate: 2 co-workers x 2 weeks): 25%, 40 hours, employee rate
• Lost productivity/time of supervisor during vacancy (2 weeks) 30%, management/supervisory rate
• Lost productivity/time of supervisor during on-boarding, orientation and training: 30%. 40 hours: management/supervisory rate
• Lost productivity of new hire during initial transition (week 1): 50% – 100% depending on the nature of training/on-boarding program: 20- 40 hours, employee rate
• Lost productivity of new hire during weeks 2 and 3 of transition (assumes a relatively simple learning curve). 25% + or 20 hours.
• Increased defects/operating errors during temp’s work period (vacancy period) or new hire’s transition to competency: $?
• Dissatisfied or lost customers during vacancy or transition. Varies considerably depending on whether employee forged relationships with customers or ran key systems: $?
• Missed opportunities during dislocation (by outgoing employee, new hire, distracted co-workers, manager/supervisor or temp): $?
• Other: e.g. damage to trust, motivation, teamwork. reputation or employment brand. This depends on the circumstances of the termination, and is affected by the personality and generation of the old employee and those who remain. The managerial skills of the supervisor/manager affect this too. Look at sites like www.glassdoor.com to see some effects of current and outgoing employees using the transparency of the web. The ubiquitous flashdrive-on-the-keyring goes out the door with the employee, and with it may go proprietary information. Please see www.managingthemillennials.com/survey. Please contact www.c-psolutions.com for these results.
Total of Indirect Costs: $ _________
Total Costs of Turnover (Direct + Indirect): $ __________
