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.

	Time (Weeks)		Hours Per Week		Hourly Pay ($)
Departing Employee	________	×	________	×	________	=	________
Coworkers	________	×	________	×	________	=	________
Manager/Supervisor	________	×	________	×	________	=	________

						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.

	Time (Weeks)		Hours Per Week		Hourly Pay ($)
Coworkers	________	×	________	×	________	=	________
Manager/Supervisor	________	×	________	×	________	=	________

						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.

	Time (Weeks)		Hours Per Week		Hourly Pay ($)
New Employee	________	×	________	×	________	=	________
Coworkers	________	×	________	×	________	=	________
Manager/Supervisor	________	×	________	×	________	=	________

						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.

	Hours Per Employee		Hourly Pay ($)
Separation Processing	________	×	________	=	________
Changes in Scheduling	________	×	________	=	________
New Job Advertisements	________	×	________	=	________
Resume Screening	________	×	________	=	________
Reference Checking	________	×	________	=	________
Interviewing Candidates	________	×	________	=	________
Onboarding Processing	________	×	________	=	________

				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.)

	Cost ($)
Job Advertisements	________
Recruiter, Search, Temp Agency	________
Background Checks, Drug Tests, Assessments	________
Orientation or Training Fees/Services	________

Total	________

Total Cost of Turnover (Per Employee)

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

	Cost ($)
Pre-Departure Costs	________
Vacancy Costs	________
Orientation and Training Costs	________
Administrative and Hiring Tasks	________
Additional Hiring Costs	________

Total	________

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.

Total Cost of Turnover (Per Employee)		Number of Departing Employees (Per Year)

________	×	________	=	________

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.