The High Costs of Turnover
One of the biggest difficulties modern employers face relates to hiring new staff. It can be incredibly difficult to attract new applicants. The current labor market is very friendly to job seekers, as it provides them with a high number of potential options. This is particularly true of skilled job seekers. This ease for job seekers translates into difficulty for employers, making it is imperative that employers strive to retain top talent within their organizations.
Staffing expert Kristen Asleson explores this in an article about the costs of replacing workers. She points to studies that demonstrate that the costs of replacing employees are significantly high. Asleson states that, “Depending on a variety of factors — including skill level, education, and experience — the total cost of turnover can be as high as 50% of an employee’s annual salary.”
While 150% may seem like a high figure,
it is important to consider all of the hidden costs behind the process of replacing an employee. These costs can be both concrete and abstract. They typically revolve around things such as:
- Time spent creating advertisements for open positions
- Purchasing outlets or venues for advertising open positions
- Interviewing potential candidates
- Checking references
- Time spent onboarding a new hire
- Training and learning opportunities for new hires
- Loss of productivity during the search for a new employee
- Loss of key company knowledge
- Overtime for employees who must cover for the loss of their coworker
- Higher potential for additional turnover as employees feel overworked
- Negative impact on overall company culture
Consider the fact that the average annual salary in the United States is about $45,000. Based on the estimate that turnover costs about 150% of an employee’s annual salary, the cost of replacing just one employee who makes $45,000 a year is $60,000. Company leaders should be keenly aware of this information. They should calculate the total costs of replacing employees by multiplying the average salary within the organization by the average number of employees who leave on an annual basis. The resulting number can be a profound wake up call regarding the importance of retaining talent so as to avoid the high costs of replacing employees.
While companies cannot completely avoid turnover, they can seek to lower incidents of turnover and they can enact methods of mitigating the costs of replacing employees when turnover occurs. Many employers turn to staffing agencies, which can provide services that help employers with advertising job openings, access to high quality candidates, training new candidates, and ensuring continuity of workflow. Employers looking to lower turnover may enlist the help of a staffing agency. This can help to get a bad situation under control, and it can ensure that a company is on a solid path toward retaining top talent.
About the Author
Justin Goodman has spent the past 20 years in insurance. He is the co-founder and CEO of Total CSR and co-founder and Managing Director of Project 55. By the age of 29, he was recognized as one of the top five construction insurance experts nationwide by Risk and Insurance Magazine. He also was named to Insurance Business Magazine’s Hot 100 and most recently the 2024 Insurance Journal Agent of the Year. Justin has trained over 50,000 CSR’s, account managers and producers through his work at Total CSR. He has a passion for developing the next generation of insurance professionals. When not with his family, he devotes his free time to speaking engagements and advising agency owners across the country.
