Employee Turnover: Calculating the Real Cost

by Kara Deyermenjian - May 21, 2018

There’s always a slew of numbers floating around the internet claiming to represent the amount of money organizations lose when one of their employees quits. While there is no doubt high turnover is extremely pricey, the actual money lost is going to vary depending on data points unique to your organization.

Calculating the actual cost of turnover

Here are some steps you can take towards identifying the real cost of turnover in your organization:

1. Get all the information without making assumptions

It helps to have all the facts before drawing conclusions, so assembling a team to gather all the data you’ll need to calculate turnover cost is a good place to start. Members of the finance team, the HR department, operational coordinators, and team leaders in the organization who are the most concerned about profitability, are often most focused on metrics and key indicators and are all valuable when looking to gather this type of information.

Questions to pose to this group include:

  •  How much does it typically cost to separate with a current employee?
    Factors to consider when answering this question:

    • Rate of departing employee’s salary plus benefits
    • Number of days departing employee’s position typically remains open
  • How much does the company need to spend with temporary, part-time or consulting employees, or outside agencies to maintain the workflow in the departing employee’s absence?
    Factors to consider:

    • Estimated overtime costs associating with covering departing employee’s work while position remains open
  • How much does it typically cost to acquire a new employee?
    Factors to consider:

    • Rate of hiring manager’s salary who is responsible for recruiting and screening applicants
    • Estimated hours spent parsing through resumes
    • Estimated hours spent interviewing
    • Estimated cost of conducting a background check
    • Estimated amount of time spent by a hiring manager or trainer with a new employee
    • Rate of hiring manager or trainer’s salary
    • Number of working days in a new employee’s first couple of months (onboarding period)

2. Analyze your findings

Now that you have your data, the next step is to interpret it. Select a benchmark position to use for verifying the results.

Calculate:

  • Overall cost when a single employee leaves your organization
  • Net and gross lost productivity
  • Total turnover cost of a role based on how many people are expected to leave that position per year

3. Communicate your findings

When dealing with busy executives and those outside of the HR arena, rely upon visual analytics to tell your story quickly. This can help HR gain a seat at the table when it comes to decision making around budgeting and programs to enhance employee engagement and retention.

Helpful visualizations include:

  • Graphs and interactive charts
  • Dashboards and widgets
  • Customized reports
  • Dials and gauges that benchmark performance

 

Keep in mind the soft costs, too

Remember, in addition to hard costs that are more tangible and easy to identify, soft costs associated with attrition and transition are not insignificant. If open roles are not filled in a reasonable timeframe, the burden incurred across a department can result in even more attrition. In a market with less than 4% unemployment, it’s best to invest in solutions that help you analyze data proactively and can alert you or a manager in your organization in advance of a flight risk, salary discrepancy, and other alignment issues.

Need a solution that has a proven track record of increasing employee engagement and retention?

CompAnalyst can help. Book a demo today.

Related Salary.com Content

TOPIC: