High employee turnover can be costly for businesses of every size. Several studies have predicted the average cost a business incurs when it needs to replace an employee, with some calculating a cost of six to nine months' salary on average.
However, the specific costs related to replacing an employee vary by wage, the role of the employee and other factors. Because these expenses can vary, it is important for every business to calculate their own specific turnover costs. Businesses must also be able to communicate these costs effectively so they can optimize their operations to minimize turnover and/or compensate for it. Below is some information you can use to calculate the costs of employee turnover for your company.
Factors to Consider
The costs of employee turnover involve multiple factors that may not immediately come to mind when you start calculating these expenses. Some of the factors your company should consider when calculating these costs include:
- Lost productivity - Perhaps the most obvious cost related to employee turnover is loss of productivity. When you have a vacancy on your staff, productivity suffers. In addition, even after you have hired a replacement, it may take as long as two years for the new employee to be as productive as an existing staff member.
- Hiring costs - When replacing an employee, you will pay a number of costs related to the hiring process, including advertising, interviewing, candidate screening and more.
- Onboarding expenses - After you have hired a replacement for a lost employee, you will need to invest in training and other onboarding activities. Training is particularly expensive, requiring an investment equal to 10 to 20 percent of an employee's salary over the first two to three years of employment.
- Errors - In many cases, new employees are more prone to make errors than established employees, which may be costly for the company.
- Problems with other employees - When an employee leaves, the company culture may suffer. When employees see a lot of turnover, they are likely to become disengaged.
Tools for Calculating Costs of Turnover
Several existing tools can help you gain better estimates of employee turnover expenses. Some of these tools include:
1. Cost of Turnover Calculator
This simple calculator provides you with an estimate of your employee turnover expenses based on basic information about your company, including the cost of advertisements, cost of drug screenings, number of hours spent on employee screening and the annual salary of a new hire.
2. SAPLING's Employee Turnover Calculator
SAPLING's employee turnover calculator is a Google Sheet that allows businesses to calculate their employee turnover expenses by inputting their own information into the sheet. Each cell can be manipulated individually to see how small changes in employee replacement expenses can change the overall cost of employee turnover.
3. The Predictive Index Employee Turnover Guide
The Predictive Index provides comprehensive instructions you can use to calculate your specific employee turnover costs using in-depth information about your business.
Communicating Employee Turnover Costs
Regardless of your company's size or the number of employees on staff, you need to be able to communicate these costs to your hiring managers. Employee turnover expenses impact your company's bottom line, and knowing the details of this impact helps hiring managers to understand the importance of their jobs. When hiring managers are well-informed, they will take ownership of the hiring process, improving efficiency and making better decisions overall.
Employee turnover costs represent a significant expense for your company, so having an accurate estimate is important. Considering the tips and tools above will help you to develop a strategy designed to minimize turnover costs and improve employee retention.