Calculating the High Cost of Employee Turnover

Among the many hidden costs of operating a business and managing employees is the high cost of employee turnover. Loss of employees due to injury even temporarily or to another employer has a major financial impact on your organization.

The costs of turnover that can be measured directly fall in two areas: exit costs, and replacement costs. Exit costs include things like severance pay, costs associated with an exit interview, outplacement fees and possible litigation costs, particularly with involuntary termination. Replacement costs are the costs of hiring, including sourcing expenses (advertising, using recruiters, etc.), processing costs for screening candidates, time spent by managers interviewing candidates, travel and relocation expenses, signing bonuses (if applicable) and orientation and training costs.

There are a number of other areas, too, that turnover adversely impacts, although probably harder to quantify. Indirect costs actually represent the greatest losses for an organization. Turnover results in a loss of productivity in the employee as well as co-workers and managers due to general disruption of the work group. Potentially even more damaging are the lost sales and lost customers resulting from an employee leaving. Employee retention is not only critical for cost-efficiency but an important factor in revenue growth as well, because of its direct link to customer relations and retention.

Given the high percentage of employees who seek new employment opportunities as well as suffer from work related injuries, managers and supervisors need to understand turnover’s costly impact. It is crucial to evaluate your organizations hiring and safety practices to attain and retain good employees.

For more information regarding Workers’ Compensation and Safety programs contact your Kapnick Insurance Group representative, visit www.kapnick.com or contact Amy DeKeyser, Risk Services Coordinator at amy.dekeyser@kapnick.com.