UBP blog

10/30/2009

Employee turnover costs more than you think

We’ve all probably heard of the traditional formula for calculating the cost of replacing a terminated (voluntary or involuntary) salaried employee, one and a half times the exiting employee’s annual salary right?

Well, according to Watson-Wyatt Worldwide’s model for calculating the true-cost of replacing a salaried employee, the one and a half times their salary figure is just a piece of the pie. Here’s why.

This figure consists of the actual out-of-pocket costs (i.e. cost of advertising your job vacancy, cost of working with recruiters to fill the now vacant position, extra pay for unused vacation time, etc.) that the accounting department uses to determine the cost of replacing an exempt employee. Watson Wyatt calls these costs the “green costs”. They also identify two other types of costs that employers should consider, these are:

  • Real (labor) Costs: the cost of labor to deal with an employee’s exit
  • Hidden Opportunity Costs: The costs of lost revenue resulting from the position’s vacancy as well as the lower team performance. For example, Watson Wyatt found that when a typical industrial salesperson leaves a company, his or her team’s sales production can decrease by 3 to 5 times the out-of-pocket costs of the exiting employees.

What does this mean for employers?

Time to ramp up your employee retention programs:

 How do employers retain key employees? One of the first and most obvious things that comes to mind is making sure compensation and benefits packages are strong (or at least in line with the industry average). However, having strong compensation and benefits package means nothing if your employees know nothing about them. How are you educating employees on the value of their incomes and their benefits?

The HR in a Box™ and online Total Compensation Statements are key for our clients:

Universal Benefit Plans custom creates online Total Compensation Statements for our clients’ employees that are easily accessible 24/7 through their unique, password protected platforms of The HR in a Box™. Employees who can see all the pieces of the total compensation pie, and the dollar amount everything adds up to, become more appreciative of what their employers are doing for them and may think twice about leaving for a competitor. If your employees only learn about their total compensation at their termination interview when you start explaining COBRA costs, it’s already too late!

 

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