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What is the cost of replacing an employee?

Dec 22, 2023

On a country-wide level, turnover costs businesses $1 trillion, according to Gallup. On an individual level, the Society for Human Resource Management (SHRM) reported it costs a company 6 to 9 months of an employee’s salary to replace them. As an example, an employee making $60,000 per year would cost $30,000 – $45,000 in recruiting and training costs to replace.

What contributes to the massive costs of replacing an employee and replacing them?

The costs noted earlier are based on both recruiting and training. This can include advertising the position, using the time of a recruiter, time spent reviewing candidates as well as interviewing, and time spent by other employees who are taking on the work of the person who left.

Once the recruiter or hiring manager does find the perfect person, there is the cost of onboarding. In most careers and businesses, an employee doesn’t hit the ground running on day one. It can be six months to a year before they can work independently. It makes sense then that companies should focus on keeping their employees as long as possible.

In addition to the time and money needed to replace an employee there are also the intangible costs. For example, high turnover can have an effect on team morale. If everyone around you seems to be leaving, you might question if there is a better opportunity elsewhere.

Another intangible loss can be felt at the managerial level. You presumably hired that person because they have talent, good ideas, and can solve problems. Losing great employees can have an effect on the overall operations of your business.

One cost some may not consider when thinking about the cost of replacing employees, the potential reputation hit your business can take if an employee leaves on bad terms. Often, unhappy employees that leave because of negative circumstances or a dispute, will leave negative reviews or do what they can to tarnish the name of the business. This type of bad press could prevent potential future employees and customers from choosing to work with your business.

 

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