Turnover occurs when the wrong person is hired and has to be replaced or employees voluntarily leave or quit working for an organization. The cost of turnover can be twice the annual salary, depending upon the position. Because human capital plays a large role in the outcome of a firm’s financial performance, turnover causes a negative impact to the organization.
The following is an example of the estimated minimum costs associated with hiring the wrong manager:
Cost of Attracting Applicants (ads, online posting, etc.): $3,000
Pre-employment Administrative Expenses (paperwork, scheduling interviews, phone calls, background checks, etc.): $200
Cost of interviews (cost of time involved for staff to interview): $500
Cost of testing: $100
Cost of hiring decision meetings: $200
Cost of job orientation: $500
Cost of overtime to cover vacancy: $4,000
Cost of new employee training: $300
Cost of lost customers, sales, profits, etc.: $3,000
Cost of Unemployment Claims ($200/week for 6 months or 24 weeks): $4,800
TOTAL ESTIMATED COSTS: $16,600
As you see, your costs of by hiring the wrong person and/or turnover could be in excess of $16,600!!! Therefore, it is imperative to hire and retain the right people for the right jobs the first time to avoid these unnecessary costs.