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Reduce the Cost of Employee Turnover and Hire Top Performers

Aug 14, 2008
Keep your business out of the red! Reduce the cost of employee turnover and hire top performers. This article will provide you with information that can help you calculate how much your business loses each year to employee turnover. Whether you're an executive, a manager or a supervisor, the following information will be beneficial to you.

Employee turnover is inevitable, but when it is excessive, it can quickly put a business in the red. The costs of turnover are easy to overlook or ignore - but you ignore them at your own peril. Excessive employee turnover has obvious costs you can track, but the real costs take a greater toll on your business. Many new employees do not become fully productive until they've been trained and gain experience, a process that usually takes several months. The time, effort, and money invested in those employees, walk out the door when they leave.

Does your organization suffer from high employee turnover? If so, have you calculated the amount you lose each year as you lose these employees? For a ballpark estimate of the money your organization loses due to employee turnover, we suggest using a conservative one-third of the total payroll of the people who turned over. This estimate roughly covers the amount of money it takes to recruit, hire and train new employees, as well as the amount of time (and salary) it takes for them to become productive.

If the ballpark estimate wasn't enough to set off an alarm, take the following example into consideration when calculating your business loss due to employee turnover:

Example #1:
Your organization employs around 100 workers. The average salary per person, including benefits is about $25,000 per year, making your annual payroll about $2.5 million. Each year, however, you lose about 10% of your workforce (10 workers). What you're actually losing, however, is 10 workers and about $75,000 per year.

Example #2:
Your organization employs around 1,000 workers. The average salary per person, including benefits is about $45,000 per year, making your annual payroll about $45 million. Each year, however, you lose about 5% of your workforce (50 workers). Losing 50 workers every year is a lot and so is $2.25 million per year.

Now think about the impact your organization would have if you could save that money. What could your organization have done with that investment? Perhaps you could have recruited exciting new talent, or researched new technology that would help you gain a competitive edge in your market. But how?

You need to be able to identify top performers before you hire them and match them to positions in your organization that provide the best job fit. People leave their jobs for many reasons that include conflicts with their manager, low pay or lack of benefits, lack of interest in their job or the inability to be successful in their current position. By focusing on matching people to jobs they were born to do, you will increase your organization's retention of top performers.
About the Author
Jim Sirbasku is co-founder and CEO of Profiles International, a leading provider of human resource management solutions and employment assessments for businesses worldwide. For information about using assessments to reduce the cost of employee turnover and hire top performers , visit our website.
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