Replacing an Employee Cost 213% More Than Previous Employee's Salary

The following is an excerpt from “There are Significant Business Costs to Replacing Employees” by the Center for American Progress.

Implementing workplace policies that benefit workers and help boost employee retention is not simply a “nice” thing for businesses to do for their employees. Maintaining a stable workforce by reducing employee turnover through better benefits and flexible workplace policies also makes good business sense, as it can result in significant cost savings to employers.

Thirty case studies taken from the 11 most-relevant research papers on the costs of employee turnover demonstrate that it costs businesses about one-fifth of a worker’s salary to replace that worker. For businesses that experience high levels of turnover, this can add up to represent significant costs that can potentially be avoided by implementing workplace flexibility and earned sick days at little or no cost at all.

Indeed, it is costly to replace workers because of the productivity losses when someone leaves a job, the costs of hiring and training a new employee, and the slower productivity until the new employee gets up to speed in their new job. Our analysis reviews 30 case studies in 11 research papers published between 1992 and 2007 that provide estimates of the cost of turnover, finding that businesses spend about one-fifth of an employee’s annual salary to replace that worker. (see Figure 1)

Specifically, the economic studies we examined reveal a number of patterns about the cost of turnover:

• For all positions except executives and physicians—jobs that require very specific skills—across the remaining 27 case studies, the typical (median) cost of turnover was 21 percent of an employee’s annual salary.
• For workers earning less than $50,000 annually—which covers three-quarters of all workers in the United States—the 22 case studies show a typical cost of turnover of 20 percent of salary, the same as across positions earning $75,000 a year or less, which includes 9 in 10 U.S. workers.
• Among positions earning $30,000 or less, which includes more than half of all U.S. workers, the cost of replacing an employee is slightly less than among positions earning less than $75,000 annually.4 The typical cost of turnover for positions earning less than $30,000 annually is 16 percent of an employee’s annual salary

Download “There are Significant Business Costs to Replacing Employees” by the Center for American Progress here.