How to Really Calculate the Cost of Employee Turnover
July 21, 2014
by Greg Willard
Employee turnover costs are often described with generic numbers such as “$X,000.00 per employee” or “X% of annual salary” (actual dollar amounts and percentages vary from source to source). It is tempting to go with simple sound bites like these, but keep in mind that they are based on averages. These overall tendencies probably don’t accurately describe your specific organization, department, or team.
The following is a simple but detailed method of computing the cost of employee turnover. The main factors in this calculation (aside from specific costs) are time and money involved with a departing employee, such as:
- Time spent on filling the vacant position;
- Hours/weeks in lost productivity before the employee leaves
- Time that coworkers and the manager/supervisor combined will need to make up for the vacant employee (overtime, added shifts, etc.);
- Number of hours in lost productivity resulting from orientation and training of a new employee; and
- Time spent on admin and hiring tasks (advertising, resume screening, interviewing, onboarding).
We can directly translate between time and money (time = $) to provide specific costs by multiplying hours by hourly wage for different types of employees, tasks, and responsibilities. The numbers that you provide can either be averages for your organization, department, or team, or they can be specific to a single turnover event. The calculation will total all the time and costs spent with every employee turnover so you can determine what the final cost is for your business.
Here are the steps to calculate all of this: