What is the REAL cost of your employee attrition? (Part 1 of 2)
If you are like most contact center leaders, then you know the pain of employee turnover. Do you know the REAL cost of your employee attrition? I’m not talking about the number someone from Finance provided you years ago. I’m talking about calculating the REAL cost to your business today. The following information is designed to help you identify these costs and develop a plan to reduce these costs.
The comprehensive checklist is designed to be used with any organization. I have also attempted to make this as easy as possible for those of you scared of the math. So, don’t be scared, keep reading.
You may need to add or remove some of these items to your formula. To determine the costs, have the hourly and weekly cost of fully loaded payroll costs (salary plus benefits) of the vacant position, the management staff, the recruitment staff and others as outlined below.
It should be noted that the costs of time and lost productivity are no less important or real than the costs associated with paying cash to vendors for services such as advertising or temporary staff. These are all very real costs to the employer.
These calculations will easily reach 150% of the employee’s annual compensation figure. The cost will be significantly higher (200% to 250% of annual compensation) for managerial and sales positions.
To put this into perspective, let’s assume the average salary & benefits of employees in a given contact center is $40,000 per year. Taking the cost of turnover at 150% of salary, the cost of turnover is then $60,000 per employee. For the mid-sized contact center of 200 employees with a 50% annual rate of turnover, the annual cost of turnover is $6 million!
We all know you will never remove all your employee attrition because some attrition is necessary. Let’s say you reduce your attrition from 50% (a relatively low number for most contact centers already) to 30% annual attrition. The cost savings using the numbers in our example are still a staggering $3.6 million. Do you know any contact center leader who would not want to add $3.6 million to their budget? And, by the way, most of that figure would be carried over to the profit line!
What about the contact center with 500 employees and an average employee salary & benefits of $50,000, with annual attrition of 100%. Sound familiar? The cost of turnover equals $37.5 MILLION! Let’s say you improve your employee attrition from 100% turnover to 80% turnover. The 25% reduction in attrition equals $7,500,000 in real profit improvement. YES…$7.5 MILLION more in the bottom line.
So, what are YOUR real employee attrition costs? Here are some of the items you need to include in your calculation:
- Calculate the cost of the person(s) who fills in while the position is vacant. This can be either the cost of a temporary or the cost of existing employees performing the vacant job as well as their own. Include the cost at overtime rates.
- Calculate the cost of lost productivity at a minimum of 50% of the person’s compensation and benefits cost for each week the position is vacant, even if there are people performing the work. Calculate the lost productivity at 100% if the position is completely vacant for any period of time.
- Calculate the cost of conducting an exit interview to include the time of the person conducting the interview, the time of the person leaving, the administrative costs of stopping payroll, benefit deductions, benefit enrollments, COBRA notification and administration, and the cost of the various forms needed to process a resigning employee.
- Calculate the cost of the manager who has to understand what work remains, and how to cover that work until a replacement is found. Calculate the cost of the manager who conducts their own version of the employee exit interview.
- Calculate the cost of training your company has invested in this employee who is leaving. Include internal training, external programs and external academic education. Include licenses or certifications the company has helped the employee obtain to do their job effectively.
- Calculate the impact on departmental productivity because the person is leaving. Who will pick up the work, what work will suffer, what departmental deadlines will not be met or delivered late. Calculate the cost of department staff discussing their reactions to the vacancy.
- Calculate the cost of severance and benefits continuation provided to employees who are leaving that are eligible for coverage under these programs.
- Calculate the cost of lost knowledge, skills and contacts that the person who is leaving is taking with them out of your door. Use a formula of 50% of the person’s annual salary for one year of service, increasing each year of service by 10%.
- Calculate the cost impact of unemployment insurance premiums, as well as, the time spent to prepare for an unemployment hearing, or the cost paid to a third party to handle the unemployment claim process on your behalf.
- Calculate the cost of losing customers the employee is going to take with them to their new position or the amount it will cost you to retain the customers of the sales person, or customer service representative who leaves.
- Subtract the cost of the person who is leaving for the amount of time the position is vacant.
These REAL costs will help you determine your TRUE costs of employee attrition. If you would like to use a simple calculator to help you, theUniversityofWisconsin Extension Officeoffers the calculator at the below link:
Our next BLOG will address more specifics about the costs of employee turnover including recruitment, training, productivity, new hire, and opportunity costs. If you know YOUR employee attrition is out of control, then contact us NOW to schedule a time to discuss our diagnostic tool to measure your concerns.
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