What does it cost to replace an employee? – eCareerCoaching.com post
Many times we are asked what it costs to replace an employee. While those answers can be hard to divine across the board, there are averages available from 2016.
By: Don Oehlert Sr. Managing Partner, <eCareerCoaching.com>
Here are some data points from 2016 that help answer this question. Some may not be a fair representation of the facts, and we believe that all of them are a bit low in many categories – especially on the higher-end employees. Having said that, these are national averages, so that needs to be taken into consideration.
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Turnover seems to vary by wage and role. For example, a 2016 CAP study found that the average costs to replace an existing employee include (plus their annual salary, BTW):
- 16 percent of annual salary for high-turnover, low-paying jobs (earning under $30,000 a year). 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. Do the math for higher-earners
Adding to the above paragraph, in an interesting post on employee retention, Josh Bersin of Bersin by Deloitte outlined those items a company should consider in calculating the “real” cost of losing an employee. These data points include:
- The cost of hiring a new employee include advertising, interviewing, screening, and finally hiring
- Cost of onboarding a new person, including training and management time
- Lost productivity—it may take a new employee one to two years to reach the productivity of an existing employee
- Lost engagement—other employees who see high turnover tend to disengage and lose productivity
- Customer service and errors—for example new employees take longer and are often less adept at solving problems
- Training cost—for example, over two to three years, a business likely invests 10 to 20 percent of an employee’s salary or more in training each year
- Cultural impact—whenever someone leaves, others take time to ask why
Many of these points directly expose the concept of historical and organizational knowledge that is lost when even an average-performing employee leaves. All internal networks collapse. When internal networks collapse, it takes longer to solve customer problems than it used to, when it would only require a phone call or two. Not to mention that the person on the other end of the line probably knew and respected the person calling them. This will not be true with new employees.
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