A certain amount of employee turnover is normal (and healthy) in most organizations. Yet, high turnover rates can severely reduce a company’s productivity or even put a small business out of business. Although you probably worry more about payroll, supplies and equipment, understanding the true cost of turnover is essential—and it’s probably higher than you think.
Turnover costs vary according to position and industry.* Estimates range from 25 percent of an employee’s annual salary, for a minimum-wage worker, to 400 percent for a top executive. Even if we assume a conservative, average turnover cost to be equal to 100 percent of someone’s salary, can you afford to give away 12 months’ worth of pay just to replace an employee? Most small to mid-sized businesses and nonprofits can’t—they struggle to make payroll as it is.
The average turnover rate in Hawai‘i is 21 percent. So, let’s take a typical local business with 25 employees and an average salary of $40,000. If the company’s annual turnover rate is 20 percent, or five employees per year, the estimated effective cost of that turnover is five times $40,000 for a total cost of $200,000. That’s a hefty price tag for most small businesses.
However, you can do something about turnover—starting with the first three secrets presented in this blog. Keeping turnover low helps increase your business’s chances of success. Also, reducing turnover has been shown to improve both team productivity and the customer experience.
*Studies have been conducted nationally and globally by organizations such as Watson Wyatt, the Saratoga Institute and the Society for Human Resource Management (SHRM).
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