How to Really Calculate the Cost of Employee Turnover

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:

Pre-Departure Costs

Enter the number of weeks that the employee works for the organization before they leave in the first column. Next, estimate the hours per week of lost productivity while the departing employee is still working. If you don’t have a specific number, you can estimate lost productivity at about 50-75 percent of weekly hours.

The next two lines are for coworkers and the manager/supervisor. In most cases, you can assume that coworkers and the manager/supervisor combined will need to put in a number of hours equal to lost productivity in order to make up the difference.

Enter the hourly pay for each employee type in the right column. Multiply number of hours per week by hourly pay for each line, and then add up the total.

Vacancy Costs

Enter the amount of time taken to fill the vacant position, the hours per week that will be needed to make up for the vacancy (e.g., extra shifts, overtime), and hourly pay for each type of employee. Multiply the number of weeks by hours per week by hourly pay for each line, and then add up the total.

Orientation and Training Costs

Enter the number of weeks required to train a new employee, number of hours per week spent on training, and hourly pay for each type of employee. Multiply number of weeks by hours per week by hourly pay for each line, and then add up the total.

Administrative and Hiring Tasks

Enter the total number of hours spent on each task, and the hourly pay for the type of employee responsible. Multiply hours per week by hourly pay for each line, and then add up the total.

Additional Hiring Costs

This section can include any additional expenses related to employee turnover. Simply enter the total cost and then add up the total. (Some of the most common expenses are listed here, but you may have others to add to this list.)

Total Cost of Turnover (Per Employee)

Now just enter the total amounts from each section above and add them up.

Total Annual Total Cost of Turnover

To obtain the total annual cost of turnover, simply multiply to total cost per employee by the number of departing employees.

What is obvious from all of this is that employee turnover is expensive. Although some companies do better than others at recruiting, hiring, and retaining their employees, there is almost always room for improvement. What you really want to know is how much room for improvement there actually is.