2.5 Cost of employee turnover
Various researches confirmed that the total cost for replacing an employee is estimated to be 50 percent to 150 percent of annual salary of the position, with higher percentage for managerial staff. Both direct and indirect cost occurs with employee turnover.
Direct costs are actual dollars spent each time by the employer. An employer has to attract, select, and induct a replacement for an employee who leaves the organization. Indirect costs are those expenditures attributable to turnovers affects on production that is costs for incomplete or disrupted work, loss of quality.
According to wiliam H, Pinkovitz,Moskal & Gray cost of turnover might include the following item.
- Separation costs, which include cost of exit interview's time, cost of terminating employee's time cost of administrative functions related to termination separation pay and increase in unemployment tax.
- Vacancy costs, which include cost of additional overtime cost of additional temporary help and wages and benefits saved due vacancy.
- Replacement Costs, which include pre-employment administrative expenses,cost of attracting applicants, cost of entrance interviews,testing cost,staff costs, travel and moving expenses,post employment information gathering and dissemination costs and cost of post employment medical exams.
- Training Costs, which include cost of informational literature, formal training costs and informal training costs.
- Performance Differential that include differential in performance costs and benefits.