What is the Real Cost of Employee Turnover?
While cost is an important factor to consider when deciding which background checks to conduct, the price may be much higher without them. Background checks create a safer workplace, assist in hiring the most qualified candidates, reduce employee theft and mitigate the risks associated with negligent hiring.
In an article by Josh Bersin he outlined factors a business should consider in calculating the “real” cost of losing an employee. These factors include:
- The cost of hiring a new employee including the advertising, interviewing, screening, and hiring.
- Cost of on-boarding a new person including training and management time.
- Lost productivity… it may take a new employee 1-2 years to reach the productivity of an existing person.
- 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 2-3 years a business likely invests 10-20% of an employee’s salary or more in training
What’s that cost?
Some studies (such as SHMR) predict that every time a business replaces a salaried employee, it costs 6 to 9 months’ salary on average. For a manager making $40,000 a year, that’s $20,000 to $30,000 in recruiting and training expenses.
But others predict the cost is even more – that losing a salaried employee can cost as much as 2x their annual salary, especially for a high-earner or executive level employee.
Turnover seems to vary by wage and role of employee. For example, a CAP study found average costs to replace an employee are:
- 16% 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% of annual salary for mid-range 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% of annual salary for highly educated executive positions. For example, the cost to replace a $100k CEO is $213,000.
The bottom line is although there are costs associated with conducting professional employee background searches the benefits outweigh the cost of employee turnover.