How much does it cost to replace an employee?

Retain your good employees

The right people in the right places

Studies show that the average cost to replace a worker in the US is $17,000.00 (AVERAGE!!). Some hiring managers use the general rule that whatever the person’s annual salary, it will cost a lot to replace them. A study evaluating the effects of the US Family Medical Leave Act found that “manager turnover costs average 150% of salary, including actual hiring costs…and intangible costs such as new worker inefficiency and lost productivity while the position is open.”

The costs of lost productivity are just as important as direct costs, such as advertising or temporary staff. Total costs easily reach 150% of annual compensation. The cost will be significantly higher (200% to 250%) for sales and management positions.

Bliss & Associates Inc., Wayne, NJ consulting firm

Oh, and if you think you can hire temporary workers and avoid all those costs, think again. The cost of hiring and producing a temporary worker is almost 40% of the temporary worker’s salary, and temporary workers tend to have higher hourly rates than permanent workers, as well as higher turnover rates.

Let’s put it in real terms. The lowest number I’ve seen anywhere says it will cost you at least 30% of an employee’s total annual compensation to replace it. Suppose you have 100 employees and their average wage is $10.00 per hour. At $10.00 per hour + benefits (at 20% of wages), your employees receive ~$12.00 per hour in wages and benefits. Let’s say you have to replace 15% of your employees each year. Taking the most conservative estimate of employee turnover costs I’ve been able to find (30% of their annual salaries and benefits); each employee he has to replace costs him $7,488.00.

100 employees X 15% X $7,488 (including benefits) = $112,320 per year.

And that’s using the most conservative cost percentage I can find. If we decide to use the national average ($17,000 / replaced employee) the cost becomes $255,000.00. Using the ‘rule of thumb’ (100% of your annual salary – $20,800.00/employee replaced), the cost will go to $312,000.00…Wow!

Why are the costs so high?

Why is it so hard to replace a leaving employee? Some costs, such as paying for increased vacation time or the cost of a help-seeking ad, are obvious.

Other costs include:

  • Rising unemployment insurance costs
  • Loss of productivity while there is a vacancy
  • Time costs for separation interview (Exit) (if your good employees are leaving, you NEED to know why)
  • Separation agreement costs (legal, financial, medical, cash withdrawal, etc.)
  • Overtime from other employees to fill the vacancy (which can lead to burnout or absenteeism)
  • Time costs to review summaries
  • Time costs to interview candidates
  • Candidate interview fees
  • Possible travel expenses
  • Possible relocation expenses
  • Signing Bonus or Headhunter Fees
  • Additional accounting; payroll, 401k, etc.
  • Additional record keeping for government agencies
  • Reduced productivity as new worker catches up
  • training programs
  • lost corporate history
  • Morale may be affected
  • lost intellectual property

There are also risks associated with the loss of an employee.

  • lawsuit threat
  • Bad PR from a disgruntled employee
  • Threat that the employee will take customers to a new company.

What can you do about it?

Job Descriptions:

Assemble a comprehensive job description with tasks and duties outlined clearly and concisely so that when someone responds to your search ad, they know what they’re applying for. Minimize that blanket phrase “Other Assigned Tasks.” This way, the employee knows what is expected of the position and the manager knows what to assess for performance reviews.

Pre- and post-employment tests:

Job match/satisfaction can be measured by using the testing and evaluation systems that are available through RP2-Consulting. The cost of these evaluation and testing programs is significantly less than the cost of turnover in the first example above. We can assess a candidate even before he shows up for an interview and tell you if he has the right attitude, will show up for work when expected, and will take home everything in the supply cabinet. We can match new candidates to a certain position. We have all heard of the ‘Peter Principle’ (an individual rises to his level of incompetence). We can look at your existing employees and match their skills and personalities to open positions in the organization. We can also help you identify the right people to build teams with. When teams are balanced (one person’s strengths cover another’s weaknesses), results improve significantly. Finally, managers (and CEOs) need to know their strengths and weaknesses, as perceived by those who work with them. Testing can show you what your true strengths and weaknesses are so you can focus on improving those things that need improvement.


Expecting someone to produce when they don’t know how to produce or what results are needed is absurd. Yet every day people are hired to do jobs in which they have little or no formal training. Make sure your employees get the training and guidance they need to meet your expectations. This will lead to better employee job satisfaction and reduce management stress. As a significant side benefit, well-trained employees are more likely to earn recognition for a job well done; and the appreciation and recognition among their peers is a great motivator. We can help you design your training programs to meet your individual needs.


The best plans and initiatives are wasted if your leadership isn’t focused on what’s working and where you want to go. Have you ever been backing out of your driveway focused on the trash can you had to avoid hitting at all costs? It’s right in the mirror, right behind the vehicle, if you hit it all morning it’ll ruin it, and like a laser, you crash into it…

We go where we focus. One key to your success is to focus on retaining your employees. Working to make them successful is much less expensive than replacing them. Treat them with respect and honor while making them feel like they have a stake in the company and that their success will lead to your success. Focus on where you want to go, not where you don’t want to go. Looking at mistakes and finding fault is focusing on the past and the mistakes made there. Learn from mistakes and move on. Plan the future that your organization wants. Focus on applauding success, both individually and for the team/company. 

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