Cost of Hiring a New Employee

March 31, 2016

Hiring can be a costly venture for most employers. The studies on costs of employee turnover are very broad and what makes it so hard to predict are the many intangible and often untracked costs. In general, turnover costs vary by wage and role of the employee. Here are some average costs of replacing an employee:

  • 16% of annual salary for high-turnover, low-paying jobs (earning under $30,000 a year). For example, the cost to replace a $10/hour retail employee would be $3,328.
  • 20% of annual salary for mid-range positions (earning $30,000 to $50,000 a year). For example, the cost to replace a $40k manager would be $8,000.
  • Up to 213% of annual salary for highly educated executive positions. For example, the cost to replace a $100k CEO is $213,000.

Some of the intangibles are:

  • The cost of hiring a new employee including the advertising, interviewing, screening, and hiring.
  • Cost of onboarding a new person including training and management time.
  • Lost productivity... it may take a new employee 1-2 years to reach the productivity of an existing person.
  • Lost engagement... other employees who see high turnover tend to disengage and lose productivity.
  • Customer service and errors, for example new employees take longer and are often less adept at solving problems.
  • Training cost. For example, over 2-3 years a business likely invests 10-20% of an employee's salary or more in training
  • Cultural impact... Whenever someone leaves others take time to ask "why?"

This list is not exhaustive by any means, but you can see that turnover is expensive. Sometimes hiring from within can lessen these costs, though there are certainly other factors to consider including the position itself, timing, pipeline of succession and resources. It’s not as complex as it may seem; it is however a strategy to hire by!

Contributed by Kym Hess, HR Business Partner, HR Collaborative, LLC.

View the on-demand webinar “Hiring: Promote from Within or Hire from Outside?” with Kym Hess.