The Cost of Turnover

The Cost of Turnover– Studies have shown that cost related to directly replacing an employee can be as high as 50-60% of the employee’s annual salary, but the total cost of turnover can reach as high as 90-200% of the employee’s annual salary.

In a human resources context, turnover is the act of replacing an employee with a new employee. Partings between organizations and employees may consist of termination, retirement, death, interagency transfers, and resignations. Turnover rate is the percentage of employees in a workforce that leave during a certain period of time. Retaining employees is an important component to a healthy organization. Losing an employee is called turnover. Turnover can be very expensive to an organization, which is why it is important to develop retention plans to manage turnover.

There are two types of turnover, voluntary turnover, and involuntary turnover. Voluntary turnover is the type of turnover that is initiated by the employee for many different reasons. Voluntary turnover can be somewhat predicted and addressed in HR, the focus of this chapter. Involuntary turnover is where the employee has no choice in their termination—for example, employer-initiated due to nonperformance. 

In HR, we can separate the costs associated with turnover into indirect costs and direct costs. Direct turnover costs include the cost of leaving, replacement costs, and transition costs, while indirect turnover costs include the loss of production and reduced performance. 

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