Burning Cash

Today’s post is an eye-opener.

How Much?

We frequently ask our clients to identify the biggest challenges they face. One of the top three responses is always “employee turnover” or something related to finding and keeping good digital staff and especially good database experts. Today’s current “Big Data” trend requires some highly skilled analysts.

We also regularly help our endurance and “thon” event clients build or expand corporate sponsorship programs. One of biggest drivers for corporate sponsors in today’s market is employee retention. Corporate sponsors like to engage their employees on corporate teams to improve both employee retention and health. After looking the cost of replacing employees we share below, it’s no surprise that companies are investing heavily in employee retention. Employee turnover is downright expensive.

How expensive?

Putting a price tag on employee turnover

Human resource experts estimate the cost of replacing a lower paid employee (food service worker), at 20% of the worker’s annual salary. The higher the level of employee, or complexity of their job, the higher percentage of the employee’s annual salary it costs to replace them. The data we’re about to show you estimates that the average cost of replacing a highly skilled employee is 75% of the employees annual salary.

What this means:  if you are paying an interactive manager $75,000 a year, you can plan on it costing you an extra $56,250 just to replace this one staff person.

Healthy turnover rate

What is a healthy turnover rate? It varies by industry, but as Bernadette Kenny reports in “Forbes” magazine, and Monster.com concurs, any employee turnover rate below 15 percent annually is considered healthy and no cause for alarm. Anything higher than that, and you’re possibly burning your donor’s or investor’s cash.

What if the cost of employee turnover was an actual budget line item. It’s a real shocker when you actually attach a cost to employee turnover as line item.

How do you arrive at an average replacement cost of 75%?

According to the following Infographic by Globoforce, it costs 75% of an employees annual salary to replace them. If this seems high, here’s what goes into the cost of replacing an employee:

Direct employee replacement costs include:

• Separation costs such as exit interviews, severance pay, and higher unemployment taxes
• The cost to temporarily cover an employee’s duties such as overtime for other staff or temporary staffing
• Lost fundraising (or sales) or online revenue if the employee is in a fundraising role–this is usually reflected in lower performance rates during transition periods
• Replacement costs such as advertising, search and agency fees, screening applicants, including physicals or drug testing, interviewing and selecting candidates, background verification, employment testing, hiring bonuses, and applicant travel and relocation costs
• Training costs such as orientation, classroom training, certifications, on-the-job training, uniforms, and informational literature

The indirect employee replacement costs include:

• Lost productivity for the departing employee who spends their last days on the job writing exit memos and transition notes
• Lost productivity of supervisors due to the need to hire temporary employees
• Coping with a vacancy or giving additional work to other employees
• Costs incurred as the new employee learns his or her job, including reduced quality, errors, and waste
• Reduced morale of employees sometimes plays a role
• Lost personal relationships with major donors, partners, and lost institutional knowledge

Here’s your homework: Calculate the cost of your annual “employee turnover” using the 75% average below and benchmark it against the “healthy” 15%. If you’re exceeding industry average, you’re likely burning hard-earned cash. In upcoming posts, we’ll explore ideas for how to manage employee turnover. But for today, this helps us quantify the cost.

Infographic