How Much Does Replacing An Employee Cost?
Losing an employee can be a devastating experience for your business—not just on an emotional level where you lose someone who was integral to your company’s growth but also in a financial sense. For instance, the SHRM study shows that it can cost six to nine months salary to replace an employee who leaves. So for a person who makes $40,000 annually, that means replacing an employee cost would be between $20,000 and $30,000 in recruitment and training costs.
There are studies that say this is actually a higher cost, though, such as the CAP study. The CAP study found the following statistics in hiring a new employee:
- “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.
- 20 percent of annual salary for midrange positions (earning $30,000 to $50,000 a year). For example, the cost to replace a $40k manager would be $8,000.
- Up to 213 percent of annual salary for highly educated executive positions. For example, the cost to replace a $100k CEO is $213,000.”
Additionally, a study by the Center for American Progress that it can cost between 100 percent and 300 percent of the base salary of the person who is being replaced.
Josh Bersin of Bersin by Deloitte found a few factors at play with the costs involved in needing to replace a new employee.
- Costs to hire, interview, and screen potential employees.
- Costs of hiring and training needed.
- Costs of lost productivity from losing an employee.
- Costs from losing engagement and enthusiasm from other employees, proving again that a healthy workspace can keep employees motivated and ultimately retain talent.
- Costs of issues that arise with a new employee who doesn’t know the ins and outs of the business yet.
So, how do you go about retaining talent so that you don’t need to replace dissatisfied employees?
- Create a workspace culture that has employees excited to come to work and enthusiastic about the work they do.
- Provide benefits to employees and a comparable salary to other competing companies.
- Create an environment where employees can offer feedback, which can come in the form of exit interviews for employees who are leaving.
- Offer a comprehensive healthcare package.
