The cost of replacing an employee is high. In fact, it’s probably much higher than you might think.
A review of 11 research papers on the cost of employee turnover revealed that it costs businesses between 16 percent to 213 percent of a person’s salary to replace them. The results break down like this:
- It costs roughly 16 percent of the annual salary to replace someone in a high-turnover, low-paying job (earning under $30,000 a year). For example, the cost to replace a $10/hour retail employee would be $3,328.
- It costs roughly 20 percent of the annual salary to replace someone in a midrange position (earning $30,000 to $50,000 a year). For example, the cost to replace a $40k manager would be $8,000.
- It costs as much as 213 percent of the annual salary to replace a person in a highly skilled executive position. For example, the cost to replace a $100k executive is $213,000.
Then there are the real costs of losing an employee that go beyond recruitment and onboarding costs. To start, there are costs associated with the loss of productivity from an unhappy employee before they leave. There’s no way of knowing how long an employee thinks about leaving before they leave. What is known is that they’ve disengaged from their work. Consequently, they’re less productive.
There is also a loss of productivity after an employee leaves. That’s because that person’s work either isn’t getting done or is placed on the shoulders of other overworked employees. Either way, it takes time to ramp back up to the previous level of productivity once the lost employee’s replacement is found.
Lowered morale is another issue. Sometimes when executive-level, highly valued, or well-liked people leave, it has a negative impact on morale that can spread throughout an organization. Employees who have been a witness to their colleague’s dissatisfaction with the workplace may begin to adopt those same feelings. The departure may raise questions as to whether the organization is a good place to work or might there be a major disruption on the horizon.
To save on the financial and practical costs of employee turnover, it’s best to do everything you can to keep your employees on board.
The Right Benefits Help Increase Retention
First, it’s important to remember that your workforce is fluid—anyone can leave at any time. Examining this issue, a recent survey found that 62 percent of employees are either actively looking for a new job or are open to opportunities. And, 66 percent of employees would consider changing jobs for a better salary and benefits.
Clearly, there is a correlation between retention and benefits. The better you tune your benefits package, the more likely it is that you will retain the talent you worked so hard to attract.
The tighter the job market, the more important it is that your organization presents itself as the employer of choice. By selecting the benefits that employees want, or finding innovative ways to leverage existing benefits, your organization can develop a strategic advantage.
What Makes Employees Stay?
What do employees want? Glassdoor asked this very question. They found that 79 percent of employees would prefer new or additional benefits to a pay increase. You read that right! The majority of employees want more benefits instead of more money. Sounds incredible, but it’s true.
Here are the benefits that the surveyed employees preferred:
- Healthcare insurance (e.g., medical, dental): 40%
- Vacation/Paid time off: 37%
- Performance bonus: 35%
- Paid sick days: 32%
- 401(k) plan, retirement plan and/or pension: 31%
- Flexible schedule (e.g., work from home): 30%
- Office perks (e.g., free lunch, casual dress): 19%
- Employee development programs (e.g., on-the-job training, professional development): 19%
- Tuition reimbursement: 18%
- Employee discounts: 17%
- Gym membership or wellness programs: 16%
- Stock, stock options and/or equity: 16%
- Paid parental leave (e.g., maternity leave, adoption assistance): 13%
- Childcare assistance (e.g., on-site childcare, financial assistance): 13%
- Commuter assistance (e.g., company shuttle, commuter checks): 9%
- Diversity program: 3%
Discovering what benefits employees want is the first step to giving them what they want. If you believe that you have an excellent benefits program, then consider tweaking it to make sure it’s in line with your employee’s desires. For instance, if you offer health insurance but don’t include dental or vision, consider including those things. Or, you can move further down the list and provide office perks like free lunch or tuition reimbursement.
But remember, it’s not all about benefits. Think of additional ways that you can improve the work lives of your employees. Your goal should be to build a culture that will encourage them to stay and remain fully engaged in their work. You don’t want disengaged employees just hanging around for the perks.
With an eye towards retention, you might decide to offer to your employees a more attractive benefits package. Additionally, you might decide to begin an initiative to change your organization’s culture. Whichever modification you make, keep in mind that its more cost-effective keep good employees than it is to replace them.