How much is employee turnover costing you?

Nov 2, 2021
by Julie East

According to the U.S. Bureau of Labor Statistics, the average direct cost for a new employee is $57,967.88 including basic wages, benefits, and taxes. Once you add in costly overtime during the vacancy of the position, recruiting and advertising costs, as well as screening and testing costs, this number can quickly grow exponentially.  In addition, as many as 84% of new hires don’t live up to the employer’s expectations. With the time, money, and resources that are associated with the hiring and on-boarding process, productivity and staff morale can be affected.

Employee turnover (replacing employees) costs money. We all know that. We also know better systems and training can help us find better employees and keep them. The dilemma is knowing how much to spend to ensure you’re getting an adequate return on your investment in people.  The cost of replacing an individual employee can range from one-half to two times the employee’s annual salary, which means a 100-person organization, with an average salary of $50,000, could have turnover and replacement costs of approximately $660,000 to $2.6 million annually.

The following questions will help you calculate the cost of employee turnover for your company. Knowing the cost of losing and then replacing an employee will help you determine how much you can afford to invest in keeping them. It will also help you analyze whether your investment in keeping your employees is adding to your bottom line.

It’s important to note that only tangible costs are included below. Intangible costs are just as real and often much greater than the costs we can quantify. Examples of intangible costs include:

• The uncompensated, increased workloads other workers assume due to vacancies.
• The stress and tension turnover causes.
• Declining employee morale.
• Decreased productivity due to loss of work group synergy.

The following worksheet is a simple example of possible costs in employee turnover. You may need to modify, add, or delete categories as appropriate for your business. The example is included to help you get started.

 

Calculating benchmark employee cost

Departing employee annual base salary: Enter salary here

Calculated annual benefits cost:  Estimated at 20% of base salary

Calculated monthly salary + benefits: Enter total here

Calculated daily salary + benefits: Based on 230 (8hr) working days

Number of days until the vacant position is filled: Enter number of working days

Calculated daily cost of ‘covering’ a vacant position: 33% of departing employee’s daily salary + benefits

Total cost to ‘cover’ vacant position: Enter total here

 

Cost to fill a vacant position

Departing employee annual base salary: Enter salary here

Calculated annual benefits cost:  Estimated at 20% of base salary

Calculated monthly salary + benefits: Enter total here

Calculated daily salary + benefits: Based on 230 (8hr) working days

Number of days until the vacant position is filled: Enter number of working days

Calculated daily cost of ‘covering’ a vacant position: 33% of departing employee’s daily salary + benefits

Total cost to ‘cover’ vacant position: Enter total here

 

Onboarding & Orientation cost

Trainer/Manager annual salary: Enter salary here

Calculated trainer/manager daily rate: Based on 230 (8hr) working days and 20% fringe rate

Total training days:  Enter number of days

Total onboarding and orientation cost:   Enter total here

 

Cost of productivity ramp-up (During the first 3 months, an average new employee performs at 50% productivity of a tenured top performing employee)

Daily employee cost (salary + benefits):  Enter cost

Number of working days during first 3 months: Enter number of days (avg. 58 days)

Cost of productivity ramp-up: Enter total here

 

Total cost of turnover (per employee):

Number of employees lost (in the last 12 months): Enter number of employees

Estimated annual turnover cost:  Enter total here.

 

These costs are very real. However, they are difficult if not impossible for most businesses to measure. Just be aware that completing this exercise only provides a portion of the total cost of employee turnover. For smaller companies who may not have a dedicated HR Department, the cost of time could outweigh the financial costs. Partnering with a staffing firm, like Lofton Staffing Services, can provide you with a cost per hire and offer financial guarantees to support the quality of their talent. In addition to cost per hire savings, employees contracted through staffing firm fall under the staffing firm’s unemployment and workers’ compensation claims. This can quickly decrease costly overhead due to injuries and employee turnover.