| There are probably few things in business | | | | Calculate the cost of drug screenings as well as |
| operations as frustrating as employee turn-over. | | | | educational and background checks for viable |
| It's both a disruption and an expense. Not only is it | | | | candidates. Add the cost of pre-employment and |
| frustrating, it's also very costly, and the costs | | | | aptitude testing. |
| occur in the form of both hard and soft dollars. | | | | New Hire Training: Include hours spent in |
| Some are evident as line-item expenses; | | | | orientation and departmental training (both of the |
| however, the ones with the greatest negative | | | | new employee and the trainer), cost of training |
| impact are typically the soft costs. | | | | materials and the appropriate percentage of |
| The problem is compounded when your company | | | | management and supervisory time. |
| experiences a high turn-over rate or when you | | | | Learning Curve: New employees take time to be |
| experience multiple, simultaneous resignations. | | | | fully productive. Use these figures: During weeks 2 |
| The Real Costs | | | | – 4, new employees are only 25% productive; |
| Consider the following checklist of the real costs | | | | therefore, calculate 75% of their salaries as cost. |
| of turn-over and replacement: | | | | In weeks 5-12, 50% productive, so 50% of |
| Exit costs: Figure the cost of the exit interview, | | | | compensation is cost. During weeks 13-20, new |
| payroll and benefit cessation; COBRA notification | | | | employees are 75% productive, so 25% of their |
| and administration; severance and benefit | | | | salaries must be absorbed as cost. |
| extensions for qualified employees. | | | | Total: As a quick point of reference, you can |
| Productivity loss: Minimum of 50% of the | | | | calculate the cost of a lost employee at a |
| position's compensation (100% if remaining | | | | minimum of 150% of base salary. Figure the cost |
| employees do not perform the tasks). | | | | at 200% to 250% percent for those in |
| Additionally, determine who will cover critical tasks | | | | managerial and sales positions. |
| and at what cost to the accuracy of his or her | | | | Keep in mind that the replacement cost cannot be |
| own performance. Calculate the cost of missed | | | | measured by base salary alone. Benefits and |
| deadlines. | | | | taxes must be calculated and added to the total |
| Training and Development: Figure the cost of the | | | | cost of employment. In New York, a $50,000 |
| employee's initial training as well as any | | | | salary immediately becomes $56,500. Training |
| subsequent career-advancement training and | | | | costs are less tangible but exist in both time |
| licenses or certifications he or she earned. | | | | spent and knowledge imparted. Who's doing your |
| Lost knowledge: While loss of institutional | | | | training? How well do they really know the |
| knowledge is very difficult to quantify, the | | | | product and the best practices of using it? |
| suggested formula is: 50% of the departing | | | | The loss of institutional knowledge associated with |
| employee's annual salary for one year and for | | | | employee turn-over is difficult to quantify and the |
| every year of service, increase it by 10%. | | | | formula above is a "best guess." Its real value |
| Lost sales: What is the value of your lost | | | | only surfaces when mistakes are made and |
| customers and sales due to the employee's | | | | inefficiencies become the normal course of |
| departure? | | | | business. By that time, your bottom line is |
| Recruitment Costs: Advertisements can typically | | | | suffering as well as your ability to service both |
| range from $200 to $5000, and recruitment | | | | internal and external clients. While you can control |
| agency fees are 20% to 30% of the starting | | | | physical assets a departing employee may leave |
| salary. | | | | with, you cannot control or retain what's in his or |
| Candidate Review: Figure either the actual invoices | | | | her head when they walk out the door. At Smith |
| of the recruitment agency or a range of 30 to | | | | & Allen Consulting, Inc., we've seen many |
| 100 hours per position for internal review. | | | | executives fail to grasp this important concept. |