I’m back again with our series centered on the Return on Employee Investment (ROEI). Throughout the series I’ll speak directly to what ROEI is, how organizations can maximize it and how they can calculate it.
The investment in an employee starts even before the actual hiring of the employee and the recruitment and on-boarding costs involved go way beyond ‘just’ posting a job opening or hiring a recruitment agency. Costs associated with replacing a departing employee include:
- Compensation and benefits while training
- Lost productivity
- Administrative costs
Employee turnover is a very large and often underestimated cost for employers. This cost does not simply represent wages and materials, but also includes recruitment costs, loss of productivity, impacts on team morale and other more subtle expenses.
In 2006, Ross Blake of Retention Associates summarized several studies that estimated the cost of replacing an employee:
- The Society for Human Resource Management (SHRM) estimates that it costs $3,500 to replace a $8.00 per hour employee. SHRM was the lowest of 17 nationally respected companies who calculated the cost.
- Other sources provide these estimates: It costs you between 30% and 50% of the annual salary of entry-level employees, 150% of middle-level employees and up to 400% for specialized, high level employees!
These numbers represent averages. The replacement of the highest performing employees could cost significantly more, for the loss of productivity is much greater.
What do you think your company’s employee turnover cost is?