How much does it cost to replace an employee?

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Employee turnover means significant costs for employers, according to a recent research review by the Centre for American Progress. In fact, having reviewed 30 case studies, the authors found that it typically costs a business around 20% of an employee’s salary to replace them.

These costs include the loss of productivity when an employee leaves, the costs of training a new employee, and reduced productivity while the new employee is learning the job.

The authors, Heather Boushey and Sarah Jane Glynn, also found that the cost of replacing an employee depended greatly on the complexity, the level of education, and the specialist training required by a position. Very highly paid jobs and those at the senior or executive levels tend to have disproportionately high turnover costs as a percentage of salary– up to 213%, the report states. At the other end of the scale, for those earning less than $30,000USD, the cost of replacement can be 16% of the employee’s salary.

According to the Human Resources Institute of New Zealand (HRINZ), it is difficult to accurately estimate the cost of replacing an employee, but they offer an even higher cost estimate. “It is generally considered a rule of thumb that losing a member of staff who has been employed in your organisation for minimum of 12 months will cost you three times their salary,” their  website states.

Workplace policies that improve employee retention can help companies reduce their turnover costs, Boushey and Glynn said.

A University of Auckland study, Turnover and Retention in a Tight Labour Market, found that retention can be improved if employers target the work environment and particular employment conditions.

To improve employee retention the study suggested that HR should focus on:

  • Staff relationships
  • The interest of the work itself
  • Job security
  • Management relationships
  • Work-life balance; and
  • Remuneration
  • Rango Jackson on 23/01/2014 7:44:49 p.m.

    It is interesting how some companies will rather loose money than give a little pay rise to the employee. To many sociopaths are involved in management. So it seems

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