Turnover – what is it costing you?

Do you know how much turnover costs your organization? Here are 7 categories of costs involved with losing and replacing an employee.



Most employers know that high employee turnover is frustrating, demotivating, and contributes towards poor morale. But many business owners simply want to know the bottom line: what is it costing me? Finally spelled out, here are the seven cost categories that you need to consider when calculating your true employee turnover costs.

According to Trusted Ally, you must consider both the exiting employee and the replacement employee costs when calculating turnover.

1. Price of Turnover: Administrative Costs for the Leaving Employee

When an employee leaves your organization, you need to assess what work remains and how to cover the bases until a new employee is hired. You have to stop payroll and benefits deductions, perform any reconciliations, conduct and document the exit interview, and provide COBRA notification and administration.

And if the employee files for unemployment insurance, you must prepare for and participate in an unemployment hearing.

2. Price of Turnover: Operational Costs for the Leaving Employee

Oftentimes there is a gap of employment between the employee leaving and hiring a replacement, creating operational costs such as hiring a temp employee or spreading your department to cover the vacant work, which can be exacerbated by a high turnover rate. That then leads to paying overtime and sacrificing productivity when your existing staff is spread too thin.

3. Price of Turnover: Recruiting Costs for the New Employee

Each time there’s a job vacancy at your company, your internal recruiter has to spend time learning about the position and its requirements, creating an advertisement, and developing a strategy. Job openings take time to announce, whether you pay for advertising space or simply post online to job boards, social media posts, or email contacts. 

Then you need to review resumes, prescreen candidates, and prepare for and conduct interviews. There may be additional time spent on scheduling interviews, making travel arrangements, and setting up group interviews. If your company does group interviews, you lose productivity for participants while they prepare for and conduct interviews, as well as time spent assessing and making a hiring decision.

You check references, make an employment offer, and notify unsuccessful applicants. Then you have drug screens, background checks, and pre-employment assessment test costs.

4. Price of Turnover: Training Costs for the New Employee

Hiring a new employee means introducing them to how your company works and training them for job-specific duties, which costs productivity time for both the new employee and those involved with training.

There are also new employee orientation materials (manuals, handbooks, etc) costs, as well as departmental and job-specific training, materials, licenses, or certifications (internal and external) costs.

Learn more with this infographic about the hidden costs of employee turnover.

5. Price of Turnover: Lost Productivity Costs for the New Employee

Getting a new employee up to speed costs the company productivity time on behalf of both the new employee and the person(s) training the new employee. When the new employee is replacing a key staff member, these costs are exponentially larger.

Consider the learning curve of the new job and time spent understanding company policies and practices, making mistakes, and the impact of a manager not being available to remaining staff.

6. Price of Turnover: Administrative Costs for the New Employee

Putting a new employee on payroll and getting things squared away with benefits enrollments takes time. You also need to establish email accounts, computer access, security passwords, and access ID cards.

You may need to update internal phone directories or your team member info online. Many companies also make internal and external publicity announcements, such as a press release for a new key employee, which takes time to create, edit, and share.

7. Price of Turnover: Operational Costs for the New Employee

Once you have a new replacement hired, that employee may need business cards, phone hookups, or perhaps a cell phone. The manager may also need to invest time getting to know the new employee to develop trust and build confidence.

Turnover costs vary by company, but many studies calculate the cost to be about one-third to one-half of an employee’s first year salary. Stratus HR has developed customized turnover cost calculators for clients to help them understand their exact turnover costs and where they can make improvements. If you want to know exactly how much your turnover costs your business, please book a free consultation.

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