Calculating the Cost of Employee Turnover
Businesses have struggled with high turnover numbers for almost a century, yet many business owners still have not been able to address the extremely high cost of employee turnover. Aside from being a financial blow to your company, employee turnover can introduce unintended costs that negatively affect an entire brand.
“The only thing worse than training your employees and having them leave is not training them and having them stay.”
— Henry Ford, Founder, Ford Motor Company
Join LearningZen to understand the effects of — and how to calculate — your company’s cost of employee turnover.
How to Accurately Calculate Turnover Costs
- The annual salary plus benefits of the departed employee
- How long the position will be open before it is filled (the average is 30–45 days)
- The time, and pay, it will take for a manager to handle recruiting and screening applicants
- The estimated costs for advertising the position
- The estimated time it takes to interview, check references, and verify applicant information
- How many current employees need to be involved in the hiring/interview processes
- The cost of background checks and potential drug screenings for new hires
- The hours needed to onboard and train a new employee, including the time and pay of the manager who does the training
- How many days new-employee training will take
- The estimated time it takes for new hires to get up to speed with work tasks
Turnover Cost Calculator
Vacant Position Coverage Cost
Cost to Fill Vacant Position
Onboarding & orientation Costs
Productivity Ramp Up Costs
Number of Employees Lost in this Position
Employee Turnover Cost:
Why Employees Leave and What It Means for You
Many factors come into play when employees choose to leave a company. Some reasons for leaving include:
- Lack of proper training
- Disliking a direct manager or boss
- Feeling limited opportunities for promotion or growth
- Being offered a better job, usually with better pay
Whether they leave voluntarily or are let go, employees leaving your business represents a large cost to the company, known as employee turnover costs. Employee turnover costs businesses, on average, between 100% and 300% of the replaced employee’s salary.
This high cost of employee turnover can sink an owner and brand faster than anything else, which is why we came up with the Employee Turnover Costs Calculator. We built this tool and are sharing it with you for free so you can see for yourself the financial implication of high turnover within your company.
Types of Employee Turnover Costs
Turnover costs can be broken down into two categories: direct costs and indirect costs. Direct costs relate to the immediate effects of an employee leaving, while indirect costs are items that may not seem immediately evident.
Direct costs include:
- Recruitment costs
- Position advertising costs
- New employee training and orientation
- Severance costs — if applicable
- Time for interviewing candidates
- Time for recruiting and training new hires
Indirect costs include:
- Lost employee knowledge
- Loss of company productivity during hiring and training new employees
- Any costs associated with an employee’s lack of productivity before leaving
- Costs related to the loss of company trade secrets
Understanding these costs and how they relate to your overall employee turnover can help you better calculate your employee turnover rate.
Enter the information below to help you determine your employee turnover costs.
With all of these factors combined, employers essentially need to follow this equation:
Vacant position coverages costs + costs to fill the vacant position + orientation, onboarding, and training costs + time it takes for employees to reach role efficiency x employees lost in the role during a year x 12
This equation gives you an accurate, annual rate of employee turnover costs.
Employee Turnover Rate Calculator
This employee turnover rate calculator allows you to determine your company’s annual employee turnover. You need to know your average employee turnover rate to calculate turnover costs and potentially estimate what your company could be spending per year on employee loss.
To find your turnover rate, take the number of employees who left, divide it by the average number of employees, and multiply it by 100. The employee numbers should only be pulled for a year to give the most accurate results.
Turnover Rate Calculator
Number of employees who have left
Average number of employees
Employee Turnover Rate:
Use this calculator to see just how much employee turnover can cost your business.
Employee turnover cost can be quite challenging for any business to determine so we’ve built a handy little ROI calculator to help. By using this calculator, you can estimate what it actually costs to replace an employee due to turnover. Trust us, the number will likely be larger than you expected and, in some cases, can be quite staggering. We studied several articles, sites, and whitepapers and decided to use 30% of an employee’s annual salary to calculate the cost. Some studies claim it can be as high as 50% of an employee’s annual salary, so the numbers could actually be much higher.
Turnover Rates vs Turnover Costs
When you compare employee turnover rates to turnover costs, you’ll notice they are different but still correlate to each other. The turnover rate is the number of employees your company loses each year. Turnover costs correspond to how much your company has to pay after losing an employee and hiring a new one. The more employees you lose, the higher your turnover rate and turnover costs are going to be.
How Turnover Affects Hiring
Some employee turnover is expected at every company. However, if a business experiences higher turnover rates, this could mean low quality of hires. High employee turnover causes your HR team to constantly be in the hiring process, leaving them little time for other company work, and pulls other employees away from their tasks to engage in the hiring, interviewing, and training processes.
You can’t stop employee turnover altogether, but by improving the quality of new hires, you may be able to lower the overall turnover rate.
New Employee Onboarding and Training Costs
The Society for Human Resource Management calculates that the average cost-per-hire for new employees sits at $4,129, and it takes about 42 days for the new hire to be fully onboarded and trained. Losing an employee puts this expense back on the company and needs to be considered when calculating overall employee turnover costs.
Why Employee Turnover Rate Matters
Employee turnover rates are important in helping companies predict future impacts in productivity, customer service, and employee morale. When an employee leaves the business, whether by choice or for other reasons, it can have a negative ripple effect in unexpected ways.
Onboarding New Hires
Onboarding a new employee takes time away from regular business operations since both employees (new and the ones doing the onboarding) are now focused on internal work. While onboarding is a necessary process in all hiring practices, it can feel especially hard after employee turnover as teams are already stretched thin.
You can streamline your onboarding process for all new hires to help make things easier when hiring to replace a lost employee.
Transitioning From New Recruit to Productive Team Member
While most employees are deemed efficient within their first 60 to 90 days, it can actually take up to eight months for a new employee to reach full productivity. After employee turnover, it may take even longer for a new hire to settle in as all other team members adjust to the “new” normal.
When one employee leaves, the rest of the team has to work harder to pick up the slack. Additionally, managers and other employees have to take time away from their own work to select potential candidates and participate in interviews.
Large layoffs or the loss of beloved employees can affect morale company-wide. If employees are leaving due to dissatisfaction and have voiced their complaints, other employees may feel negative emotions around the situation. This can lower employee morale overall and — in some cases — lead to additional employees leaving the company.
If your company is experiencing a decrease in employee morale after turnover, you can find ways to boost morale here.
When a member of the team moves on from your company, the remaining employees are left in a transitional period that can cause some disruption. There will be additional work that now needs to be shared between fewer employees and some positions may be shifted around during the interim period before recruiting a new hire.
During the time before a new employee fills the position, your company could experience lower productivity, decreased customer service, and a delay in deadlines as the remaining employees try to compensate for the lost employee.
Minimize Employee Turnover With Retention Strategies
In most cases, you will not have control over an employee leaving your company. Unless they specifically are let go, or are one of multiple layoffs, your employees can leave for a variety of reasons. But, by implementing retention strategies into your business, you can start to minimize employee turnover.
When you are creating retention strategies for your company, consider some of these options.
Improve the Hiring Process
When you focus on hiring high-quality employees for your company, it can lead to less turnover. Hire people that closely fit your company’s needs and the position requirements to create a better match that is less likely to result in an employee leaving.
Offer Competitive Pay and Benefits
Outside of management issues, pay and benefits are the top reasons for employee turnover. Employees who feel undervalued for their work are going to seek employment at companies that offer them more. If you keep your salary and benefit options competitive with what similar companies are offering, you have a higher chance of keeping employees longer.
Train Management Effectively
The most common reason we see high turnover is due to leadership, or a lack of it. Owners and managers may be in charge, but they don’t always know how to effectively lead employees. Investment in leadership training for your company can help reduce turnover, keep key talent, improve productivity, and increase profitability while making a company a great place to work.
Create Clear Work Objectives
If employees have unclear job duties and don’t have an easy way to track their progress, they may not stick around for long. When you create clear expectations and progression benchmarks, employees are more motivated to fulfill their roles and try to constantly improve. Managers can run better performance reviews when everyone understands the set expectations and employees feel they have an active role in their job progress.
Value Work/Life Balance
No one likes to feel like they are married to their job. Everyone needs the time to enjoy life outside of work hours and employees often jump from job to job until they find the work/life balance they need. Making this balance a priority in your company helps create happier employees who want to keep working for you.
Keep Employees and Reduce Turnover Costs
Now that you know how to calculate employee turnover costs and how they can affect your entire company, you can work toward keeping your employees and reducing the turnover costs. Follow the tips above and take things a step further by investing in employee training. At Learning Zen, we help you implement learning management systems that keep employees trained, informed, engaged, and more satisfied with their jobs. Happy, knowledgeable employees are more likely to stay with their employers, which helps you reduce employee turnover and associated costs. Contact our team to get started.