Casey Reynolds

How to Calculate your Employee Turnover Rate and Cost



Why Retaining Your Employees Is Vital To Staying In Business
Employee turnover rate

Many surveys say that the number one issue facing businesses is finding and keeping good employees; however, there are many differing opinions as to which of these two is the toughest to accomplish.

Retaining Employees Versus Finding Them
Holding onto employees is crucial to a low employee turnover rate

After over 20 years of employing hundreds of people, I’ve come to the conclusion that hanging onto employees is harder than finding them. I liken it to making and keeping money. They say that it’s easier to make money than it is to keep it. For example, if you surveyed recent lottery winners, you’d find that within one year of winning millions of dollars, they don’t even have one dime left of their winnings.

I’m not saying that it’s easy to find good employees, I’m just saying that if you put finding 1 good employee up against retaining them, I say it’s easier to find them because...

Recruiting Employees Is a Numbers Game

If you know what makes your target employee tick - what they really want and desire - then you can shout it from the rooftop on every advertisement and draw them in like a magnet.

It takes a lot more than just running a customized advertisement to retain employees. It takes learning about what they want, getting them to like you, showering them with appreciation, recognizing and respecting them, and paying them better than anyone else can.

Why Retaining Employees Is Vital To A Low Employee Turnover Rate

Retaining employees is like walking a tight rope, but it’s a tight rope worth walking. A high employee turnover rate can cost you tens of thousands of dollars a year. It’s much cheaper just to keep your good employees rather than to keep hiring new ones. Let me show you why:

Hidden Turnover Costs
Concealed expenses can skyrocket your employee turnover rate

Most business owners and managers think that the cost of losing an employee consists only of the direct cost of lost advertising expense, but how about all of those indirect costs you incur when you lose an employee? The following is a staggering list of hidden indirect costs that will swell your employee turnover rate. These consist of costs attributed to the employee leaving and the costs of hiring and training the new one to replace them.

Costs attributed to the employee leaving:

Lost productivity two weeks prior to their leaving when their mind and full attention are elsewhere
Advertising, recruiting and interviewing expense of departed employee
Departed employee’s salary and benefits
Wasted management time dealing with issues surrounding departed employee
Exit interviewer’s time
Employee wages during exit interview
Unemployment compensation
Increased unemployment tax
Possible cost of lost customers the departed employee took with them
Morale and other problems departed employee caused
Legal fees for issues surrounding termination
Possible data theft

Costs of acquiring the new hire to replace them:

Staff time answering phones and setting up interviews
Interviewing time of managers
Staff time calling to check references
Personality or assessment testing
Pre-employment checks
Time spent in meetings dealing with these issues
Time other employees spend distracted by the situation
Time other employees spend not doing their job because they’re doing the departed employees job
Customers alienated by departed employee leaving
Employee referral reward

Costs of training the new hire:

New employee orientation
Explanation of benefits and policies
Signing benefit paperwork
Computer training
Supervisor’s time training new hire
Mistakes new hire makes
Lost productivity costs while paying employee full pay rate
(1st 4 weeks only 25% productive)
(5 – 8 weeks only 75% productive)

And remember, this is money thrown away on only one lost employee. If you have 10 employees who quit or are terminated in one year, multiply these costs by 10 and you can see how shocking these hidden costs can be.

Turnover Rate

Turnover costs and rates are two different things. Your employee turnover rate is calculated by dividing the total number of employees who quit or were terminated during the year by the total number of employees on staff during that current year. Then multiply that number by 100. For example, if you had 50 employees quit or were terminated last year and 150 full- time employees were on the payroll that year, you’d divide 150 by 50 which would give you .333 ,Then multiply that figure by 100. Your turnover rate would be 33%.

If the cost of turnover for each employee who left or was terminated is $7,500 and 50 people were replaced that year, the total cost of turnover that year was $375,000. Isn’t that astounding?

Many business owners and managers are deceived into thinking that their employee turnover rate and costs are low when actually they’re astronomical. My hope is that after you read this, you’ll take the steps to figure out your true employee turnover rate and costs and then start to implement a plan to retain your employees.

Retaining your good employees will save you tens of thousands of dollars in hidden costs every year. It definitely pays to keep them anyway you can.

Click here for more information on how to calculate your employee turnover rate

Casey Reynolds is an Entrepreneur, Author and Expert with over 20 years of experience in Hiring and Retaining Employees.Visit him at www.profitableemployeesolutions.com or e-mail him at casey@profitableemployeesolutions.com