How costly is employee turnover?
Employee turnover can be a costly issue for companies, both in terms of direct expenses and the impact on productivity and morale. To better understand the financial impact of turnover, companies can use the following steps to calculate the cost of employee turnover:
Step 1: Determine the Total Number of Employees Turned Over
To begin, determine the total number of employees who have left the company over a specific period. This can include voluntary and involuntary departures, as well as retirements and terminations.
Step 2: Calculate the Cost of Recruitment and Hiring
The cost of recruitment and hiring can vary depending on the level of the position, the industry, and the location of the company. Some of the expenses to consider when calculating recruitment and hiring costs include:
- Job postings and advertising
- Recruiter or headhunter fees
- Employee referral bonuses
- Pre-employment testing and assessments
- Background checks and drug screening
- Interview expenses (travel, meals, etc.)
- Onboarding and training costs
Add up these expenses for each new hire that was required to replace the employees who left.
Step 3: Estimate the Cost of Lost Productivity
When employees leave, there is often a period of time where the position is vacant or being covered by other employees. This can lead to a decrease in productivity and a loss of revenue. Some of the factors to consider when estimating the cost of lost productivity include:
- Decreased output or sales during the transition period
- The cost of overtime or temporary employees to cover the vacant position
- The cost of mistakes or errors made by other employees while covering the vacant position
Estimate the total cost of lost productivity during the transition period for each employee who left.
Step 4: Calculate the Cost of Training and Development
Training and development can be a significant investment for companies, particularly for specialized roles or industries. When employees leave, the investment in training and development is lost. Some of the expenses to consider when calculating the cost of training and development include:
- Orientation and onboarding
- Job-specific training
- Professional development courses or certifications
- Leadership and management training
Calculate the total cost of training and development for each employee who left.
Step 5: Add Up the Costs
Once you have completed the previous steps, add up the costs to determine the total cost of employee turnover. This can be calculated on a per-employee basis or as a total cost for the entire organization.
Total Cost of Employee Turnover = Cost of Recruitment and Hiring + Cost of Lost Productivity + Cost of Training and Development
Step 6: Analyze the Data
HR Manager calculating the cost of employee turnover.
Finally, analyze the data to better understand the impact of employee turnover on the organization. Look for trends or patterns in the data, such as departments or positions that have a higher turnover rate or factors that contribute to turnover (such as low pay, poor management, or lack of opportunities for advancement).
By understanding the cost of employee turnover, companies can take proactive steps to reduce turnover and retain their best employees. This may include improving the hiring process, increasing employee engagement and satisfaction, offering competitive salaries and benefits, and providing opportunities for career development and advancement.
