How to Calculate the Cost of Employee Turnover in 2019

Knowing your employee turnover costs can help to determine how best to retain employees.

Employee turnover is costly to many organizations, particularly when replacement labor is hard to come by because of tight conditions in an unusually good economy. Figuring out the cost of employee turnover can help companies make better decisions about whether it’s worthwhile to spend money on employee retention efforts and how much is wise to spend.

Many methods of calculating employee turnover can be complicated and involve dozens of different types of data. Can you really quantify how much less productive an employee will be in their first or last few weeks on the job, how many hours it will take to train a new employee, or how many more hours other employees might have to work to take on the departed employee’s workload until a replacement can be found?

Even if you can make these complicated calculations correctly, is it really worth the hours it will take to collect all that data and put it together?

And yet, having a cost of turnover calculator has benefits for companies. Finding a simpler way to calculate these costs will make it even more beneficial and help you understand how employee turnover impacts the company financially and otherwise.

One way to simplify the data involved in calculating employee turnover is to put it into categories.

Step 1: Daily Job Cost. Taking the current annual salary and benefits and dividing by the number of days worked in a year (usually 260 for a full-time position) should yield this daily figure.

Example: If the annual salary and benefits add up to $60,000, the daily job cost is $270.77 per day.

Step 2: Job coverage cost. Once you know the daily cost for the vacant job, you can multiply by the number of days the job is vacant to see how much job coverage will cost.

Example: If the above job is vacant for 30 days, the job coverage cost will be $8,123.10.

Onboarding is part of employee turnover costs.

Step 3: Cost to fill position. The main costs that go into filling a position are listing costs, assessments, and background checks. The hours spent by other employees to screen applications and conduct interviews can also be calculated if desired, but costs are only significant if the employee’s entire job is spent on hiring tasks. Others’ jobs are not dependent on hiring and would exist regardless of hiring.

Example: Three listings at $100 each, assessments for a shortlist of five people at $200 each, and $100 for background checks on the chosen candidate. The total cost to fill the position is $1,400.

Step 4: Onboarding cost. This calculation is the hourly rate of the employee(s) involved in the onboarding process multiplied by the hours it takes to onboard and initially train a new employee.

Example: If the HR person earns $20 per hour and spends 10 hours, and the department manager makes $35 per hour and spends 15 hours on onboarding and orientation, the total onboarding cost is $725.

Step 5: Productivity cost. The first few days or weeks of an employee’s tenure will mostly be spent learning the position rather than engaging in productive work. The newly filled position’s daily salary and benefits times the number of days spent getting up to speed will yield that number.

Example: If the position takes two weeks to learn, and the daily salary and benefits are the aforementioned $270.77, the productivity cost will be $2,707.70.

Adding steps two through five, the total turnover cost for this one position is $12,955.80, or about 22% of the annual salary and benefits.

While many companies rely on averages to determine their turnover costs, these figures can vary widely and may cause them to be thousands of dollars off in their calculations — not very practical for realistic budgeting. Knowing the real cost of employee turnover is far superior to a likely inaccurate estimate.

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