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The Strictly Financial Effects of Employee Turnover on Your Company

Dec 2, 2020 | Business

How costly is employee turnover? That depends. It’s estimated that replacing an employee can cost up to twice the employee’s salary. For hourly workers, the cost averages $1,500 per employee. For executives, the price can be as high as 213% of their yearly compensation. Replacing technical staff can cost as much as 150% of their annual salary. The often-quoted 33% only reflects the cost-per-hire. However, it doesn’t include the cost-of-vacancy or the intangibles, such as lost productivity. So, what is the financial cost of employee turnover?

Direct Costs

These costs include expenses such as:

  • Recruitment
  • Interview
  • Pre-Employment
  • Employment

The level of seniority increases these direct costs, as does the position of the vacancy on the corporate ladder.


This category includes the cost of advertising the position on various job sites such as ZipRecruiter, Monster, or Indeed. Companies may advertise locally or on trade-specific sites. For some positions, recruiters are the better option, but you will pay a fee. Recruitment also includes the time required to prepare the job description or advertising copy.


Although more interviews are conducted remotely, certain positions still require in-person interviews. For those openings, expenditures may include travel and living costs for candidates to visit. If companies use job fairs, there’s the travel and set-up costs as well as staff time to prepare and attend the fairs. That doesn’t include the time spent interviewing potential candidates.


For the candidates moving to the next step, there are the costs for background checks, reference checks, and credential verification. Costs for pre-employment testing and screening are incurred whether they are performed in-house or through a third-party, 


Be sure to include the costs for total compensation. That may include signing bonuses, relocation expenses, and even temporary housing. Stephen King, the president, and CEO of GrowthForce noted that external hires cost around 20% more in compensation than internal hires. Don’t forget the unused personal time that a company must pay its employees upon termination.


Effective onboarding and training can make the difference between a successful and an unsuccessful hire. To be effective, onboarding and training take time. Here are some costs to consider when onboarding a new hire:

  • Administrative Costs: Human Resources has to go over company benefits and policies before enrolling in any programs. Accounting has to process paperwork for payroll, and IT has to set up and train new employees on the company’s network.
  • Training Costs: There are the costs of preparing training materials, if needed, as well as a trainer’s time for conducting the classes. If classes are conducted offsite, there may be costs for travel and lodging.  
  • Accommodation Costs: Companies may need to purchase additional equipment or software licenses. New hires may require special equipment to perform their job responsibilities.

While employees are onboarding, they are not producing, so there’s the cost of lost productivity.

Opportunity Costs

Although opportunity costs are difficult to quantify, they are real costs.  Opportunity costs are the benefits businesses do not realize because they don’t have the resources to do the job. For example, an organization delays new automation software deployment because IT doesn’t have the personnel. Because the automation software was not in place, an end-of-life part is not replaced, resulting in an hour of downtime. On average, an hour of unplanned downtime costs a company $260,000

If you’re concerned about the high cost of employee turnover, talk to BrightR. Let us find the right resource for your specific needs.

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