Running head: Voluntary Turnover Costs 1

Voluntary Turnover Costs

Heather Seidl

Saint Leo University

HRA 596

Dr. Gibbons

June 21, 2018

Student Signature: [Heather Seidl]

 2
VOLUNTARY TURNOVER COSTS

Executive Summary

When an employee leaves their job, the company incurs both direct and indirect costs

regardless of the reason of turnover. Direct costs refer to the financial costs and indirect costs

refer to things such as loss of organizational performance and knowledge. This report examines

costs associated with the voluntary turnover of a 10-year HR Specialist for a supply chain and

logistical company. It is assumed the reason for leaving is for lack of career development

opportunities. While there is no standard for determining exact costs of turnover, it is evident

that significant financial and organizational losses are incurred but can be strategically managed.
 3
VOLUNTARY TURNOVER COSTS

Voluntary Turnover

This type of turnover refers to when an employee leaves a company on their own accord.

In 2016, the BLS reported that there were 35,746, 000 voluntary separations that totaled $536

billion in employer costs (The Workforce Institute, 2018). Reasons for voluntary turnover

include but are not limited to lack of career development opportunities, relocation,

compensation/benefits, environment, work-life balance, retirement. The Workforce Institute

(2018) cites career development as the most popular category of reasons why employees left

their jobs and has been on the rise in the past 3-7 years.

Dysfunctional or Functional?

Dysfunctional turnover is harmful to the organization while functional turnover is

beneficial. In other words, dysfunctional turnover refers to the loss of employees who are

difficult to replace/high performers and functional turnover refers to the loss of employees that

are easy to replace and/or are toxic to the organization.

In the example of the HR Specialist, the loss of this employee would be dysfunctional.

This employee possesses significant company knowledge, has hired and trained the clerks that

work on the team, has a great rapport with the workforce, and possess the desired degree and

unique certifications.

Turnover Cost Breakdown

Since there is not a uniform standard of calculating turnover costs, the Workforce Institute’s

estimate of 33% of annual salary will be used. This number is intended to reflect total direct

costs incurred from turnover. In this scenario, the HR Specialist currently earns $55,000

annually. This means the direct costs associated with this turnover would total more than

$18,000. This can be further broken down by each associated cost; below is an estimate of
 4
VOLUNTARY TURNOVER COSTS

hours/wages based on the remaining 3 HR clerks who would pick up a majority of the burden in

the interim and assuming the vacancy was filled in 6 weeks:

 Overtime estimate of 10 extra hours per week, per clerk who each earn $14hr =

approximately $3,780

 Ad campaign for 6 weeks = $2,500

 Interviewing for replacement estimated at 5-10 total hours, conducted by the HR manager

= approximately $1,000

 Drug testing and background screen through third party = $300

 Orientation, training, and onboarding combined takes approximately 6 months before

replacement is fully integrated = approximately $10,500

 TOTAL = $18, 080

There are several other indirect costs that are difficult to put a price tag on such as lost

knowledge, performance differences, teamwork disruptions, and diminished quality while the job

is vacant (Mello, 2015).

Strategic Management of Turnover

In this case, the company could have done several things to avoid this turnover. As

Allen, Bryant, & Vardaman (2015) from Reading 13.1 point out, offering development

opportunities linked to tenure generally decreases the desire to leave. In this case, the HR

Specialist was in the same role for 10 years. To offset the amount of time it takes for an HR

Manager position to come open somewhere in the company, the management could have built

another step within the current role that came with a salary increase. For example, the company

could have promoted him/her to Senior HR Specialist and gave a raise to the base salary or
 5
VOLUNTARY TURNOVER COSTS

increased the annual bonus percentage potential. This is something that can be learned from this

experience and implemented with the replacement employee.

On the other hand, the company can still find benefit in this turnover. The replacement

may bring new skills/creativity to the organization and could potentially be hired at a lower

salary if the person has less experience. This could also create an opportunity to promote

someone from within the organization which could mean savings by offering a lower salary than

the $55,000 that the previous employee was earning. The company could then see even more

savings because it would be cheaper to replace the newly promoted employee.

Conclusion

Although the method/formula to calculate turnover costs can be tricky and vary per

company, it is apparent that these costs are substantial. A company’s best defense is to identify

turnover predictors and focus on improving those areas. Since some form of turnover is

inevitable, companies should identify a standard for realizing potential benefits that can come

from it.
 6
VOLUNTARY TURNOVER COSTS

References

Mello, J. A. (2015). Strategic human resource management (4th ed.). Australia: Cengage

Learning. ISBN: 9781285426792

Workforce Institute. (2018). 2017 Retention Report: Trends, Reasons & Recommendations | The

Truth about Employee Retention & Employee Turnover. [online] Info.workinstitute.com.

Available at: http://info.workinstitute.com/retentionreport2017 [Accessed 22 Jun. 2018].