The Cost of Employee Turnover

July 9, 2007

By: Gregory P. Smith
Each year U.S. businesses spend billions of dollars recruiting and replacing their employees.

Individually, it costs between $4,000-$14,000 to replace an hourly employee, and upwards to $40,000 to replace a manager. One Silicon Valley company estimates the cost of replacing an employee is over $125,000.

While many leading companies place more effort on employee retention, many remain clueless. They accept employee turnover as a normal part of doing business. High turnover organizations spend disproportionate amounts of resources on recruiting and replacing their workforce, while smart organizations invest in employee retention.

Yes, there is going to be turnover no matter what you do, but blindly ignoring the reasons is foolish and expensive.

Just consider the turnover replacement costs by industry. (U.S. dollars) per employee:

  • Construction--$14,500
  • Manufacturing--$14,500
  • Trade & Transportation-$12,500
  • Information--$19,500
  • Financial Activities--$18,000
  • Professional & Business--$15,500
  • Education & Health--$14,000
  • Leisure & Hospitality--$7,000
  • Other Services--$12,750
  • All Private--$14,000

Source: Employment Policy Foundation tabulation and analysis of Bureau of Labor Statistics, Employer Cost of Employee Compensation data.

Growing Worker Shortages

As you know, it is becoming more difficult to attract and keep skilled employees. Many businesses and industries are desperate for help and either can't find people with the right skills and attitudes, or ignore non-traditional workers.

The aging workforce provides an important talent pool businesses need to address. The growth rate of the workforce has been steadily declining since the 1970s. Both the U.S. Census Bureau and a report by Accenture Consulting, indicates the workforce will begin to experience a negative growth rate beginning in the year 2015.

Census figures show the age group 45 to 65 as the largest demographic group. Estimates indicate by the year 2020 one out of every two people in the U.S. will be older than 50.

Older workers are willing to stay in the workforce longer or even re-enter the workforce after retirement. Yet, most businesses continue to cater to younger workers. A survey conducted by the Society of Human Resource Managers shows 65 percent of companies surveyed exerted no effort to recruit older workers for open positions. Eighty- one percent did not have benefit plans designed with older workers in mind.

When do you focus on employee retention?

Most businesses focus on employee retention only when turnover increases. Successful organizations make employee retention a formalized part of their management strategy. They have are plans and actions in place to prevent unnecessary turnover from happening.

During these lessons we will talk about a few of the many things that need to be in place for a successful retention strategy.

Here are some questions to consider:
-Does your organization have an employee retention strategy?
-Is there someone in charge of retention?
-Are your managers properly trained?
-Do you measure the cost of turnover?
-Are your managers and leaders held accountable for retention?
-How involved are your executives?
-Do you measure job satisfaction?

Greg Smith helps create high performance organizations that attract, keep, and motivate their workforce. As President of Chart Your Course International he has designed and implemented professional development programs for hundreds of organizations globally. As a business growth consultant, he has helped business owners reduce turnover, increase sales, deliver better customer service, and reach long-term prosperity. Greg is published in hundreds of trade publications. He is also the author of Here Today, Here Tomorrow: Transforming Your Workforce from High Turnover to High Retention, the New Leader, and several other books. For more information, visit or call (800) 821-2487 or (770) 860-9464.


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