Cost Of Employee Turnover
This article provides estimates of turnover costs for various groups of employees and details the various factors that influence the total turnover figure.
Employee turnover is far more expensive than most people realize. In the worst-case scenarios, the loss of a single individual can put a major project at risk, with implications for the long-term viability of the company. Many firms are underestimating the total cost of employee turnover by simply considering the more visible costs, such as the cost of finding a replacement, while ignoring many of the negative consequences of turnover and their associated costs.
Calculating The Cost Of Turnover
There are two types of costs involved in employee turnover: visible costs and invisible costs.
Visible costs:
- Exit costs
- Recruitment costs
- Induction/orientation costs
- Training costs
Looking at some of these in more detail: Recruitment costs include the cost of advertising, the cost of the interview process including any psychometric testing and assessment centers, candidate travel costs, golden handshakes, and relocation costs where applicable.
Invisible or hidden costs:
- Management time
- Disruption to fellow employees
- Damage to morale
- Missed business opportunities
- Lost productivity until the new employee is up to speed
- Damage to business relationships
- Loss of knowledge, skills, and expertise
- Impact on reputation
- Disruption to social and communication networks
Some of these hidden costs are more difficult to calculate and may need to be estimated using expert studies. If attempting to calculate the total cost of turnover yourself, you will need to speak to a variety of relevant people. These will normally include the recruitment manager, training manager, customer relations manager, and departmental manager. It may also be appropriate to speak to customers and clients to get a sense of their perspective.
Other Factors
There are several other factors that will affect the cost of turnover. These include the duration of employment, whether the departure was voluntary or involuntary, the time taken to find a replacement, and the time it takes to become fully productive in the role. For example, an employee that leaves on their first day will cost far less than the loss of a fully productive employee who had established strong relationships with clients. A role that requires a great deal of firm-specific knowledge is likely to have a much higher cost of turnover than a similar role that can be performed with transferable (or generalized) knowledge alone.
The Importance Of The Total Cost
Firms need information on which to be able to make decisions. Where the cost of employee turnover has been underestimated, the firm is likely to underestimate the size of the problem and, in turn, fail to put in place the optimal solution. There have been several notable examples where firms have folded, having neglected to pay attention to high employee turnover. How much this was due to underestimating the true costs of turnover is unclear, but a more accurate figure might have given them a warning of the dangers ahead. So failing to establish a fair reflection of the actual cost of turnover may damage the business in the long run.
Estimates Of The Cost Of Turnover
There have been a number of studies done into the cost of employee turnover for various different groups of employees. Turnover costs tend to be expressed as a percentage of salary.
- Non-skilled: 30 - 50%
- Service/production: 40 - 70%
- Skilled: 60 - 85%
- Clerical/administrative: 50 - 80%
- Professional: 75 - 125%*
- Technical: 80 - 125%
- Specialists: 100 - 250%
- Supervisors: 70 - 140%
- Managers: 70 - 150%*
* Figures can exceed this range.
Check the availability of replacements before arriving at your final estimate. The loss of a highly productive employee will always cost more than the loss of an average performer in an equivalent role. In areas such as customer service, it is relatively easy to see how turnover can have a negative impact on customers, putting at risk the lifetime value of the customer to the firm. Any employees in client-facing roles should have a premium added to cover damage to business relationships.
An Example
Suppose we want to estimate the cost of turnover for two categories of administrative staff using available research-based figures.
Category 1: Moderate standard, easy to find replacements.
Category 2: Good performers, more difficult to find replacements.
Our research-based range is 50 - 80% of salary. If we examine the list of invisible costs, considering each factor to see if it is relevant in this instance, we might reasonably assume that the loss of Category 2 employees would be more disruptive to fellow employees and that their replacements might take longer to become as productive. There may also be a degree of loss of important knowledge to consider. In particular instances, some of the other factors might be relevant but viewed as a category they would tend not to apply. So overall, we might consider it reasonable to place Category 1 employees near the bottom of the scale, and Category 2 employees near the top.
Our final estimates:
Category 1: 50%
Category 2: 75%
It must be noted that these are only rough estimates but even so, they will be of value when decisions have to be made later on, determining priorities and assessing possible returns on investments for those retention strategies under consideration.
References:
- Development Dimensions International
- Competing For Talent - Nancy Ahlrichs
- The HR Scorecard - Becker, Huselid & Ulrich
- Managing Employee Retention - Phillips & Connell
© Colin Brown 2004
From United Kingdom, London
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This article provides estimates of turnover costs for various groups of employees and details the various factors that influence the total turnover figure.
Employee turnover is far more expensive than most people realize. In the worst-case scenarios, the loss of a single individual can put a major project at risk, with implications for the long-term viability of the company. Many firms are underestimating the total cost of employee turnover by simply considering the more visible costs, such as the cost of finding a replacement, while ignoring many of the negative consequences of turnover and their associated costs.
Calculating The Cost Of Turnover
There are two types of costs involved in employee turnover: visible costs and invisible costs.
Visible costs:
- Exit costs
- Recruitment costs
- Induction/orientation costs
- Training costs
Looking at some of these in more detail: Recruitment costs include the cost of advertising, the cost of the interview process including any psychometric testing and assessment centers, candidate travel costs, golden handshakes, and relocation costs where applicable.
Invisible or hidden costs:
- Management time
- Disruption to fellow employees
- Damage to morale
- Missed business opportunities
- Lost productivity until the new employee is up to speed
- Damage to business relationships
- Loss of knowledge, skills, and expertise
- Impact on reputation
- Disruption to social and communication networks
Some of these hidden costs are more difficult to calculate and may need to be estimated using expert studies. If attempting to calculate the total cost of turnover yourself, you will need to speak to a variety of relevant people. These will normally include the recruitment manager, training manager, customer relations manager, and departmental manager. It may also be appropriate to speak to customers and clients to get a sense of their perspective.
Other Factors
There are several other factors that will affect the cost of turnover. These include the duration of employment, whether the departure was voluntary or involuntary, the time taken to find a replacement, and the time it takes to become fully productive in the role. For example, an employee that leaves on their first day will cost far less than the loss of a fully productive employee who had established strong relationships with clients. A role that requires a great deal of firm-specific knowledge is likely to have a much higher cost of turnover than a similar role that can be performed with transferable (or generalized) knowledge alone.
The Importance Of The Total Cost
Firms need information on which to be able to make decisions. Where the cost of employee turnover has been underestimated, the firm is likely to underestimate the size of the problem and, in turn, fail to put in place the optimal solution. There have been several notable examples where firms have folded, having neglected to pay attention to high employee turnover. How much this was due to underestimating the true costs of turnover is unclear, but a more accurate figure might have given them a warning of the dangers ahead. So failing to establish a fair reflection of the actual cost of turnover may damage the business in the long run.
Estimates Of The Cost Of Turnover
There have been a number of studies done into the cost of employee turnover for various different groups of employees. Turnover costs tend to be expressed as a percentage of salary.
- Non-skilled: 30 - 50%
- Service/production: 40 - 70%
- Skilled: 60 - 85%
- Clerical/administrative: 50 - 80%
- Professional: 75 - 125%*
- Technical: 80 - 125%
- Specialists: 100 - 250%
- Supervisors: 70 - 140%
- Managers: 70 - 150%*
* Figures can exceed this range.
Check the availability of replacements before arriving at your final estimate. The loss of a highly productive employee will always cost more than the loss of an average performer in an equivalent role. In areas such as customer service, it is relatively easy to see how turnover can have a negative impact on customers, putting at risk the lifetime value of the customer to the firm. Any employees in client-facing roles should have a premium added to cover damage to business relationships.
An Example
Suppose we want to estimate the cost of turnover for two categories of administrative staff using available research-based figures.
Category 1: Moderate standard, easy to find replacements.
Category 2: Good performers, more difficult to find replacements.
Our research-based range is 50 - 80% of salary. If we examine the list of invisible costs, considering each factor to see if it is relevant in this instance, we might reasonably assume that the loss of Category 2 employees would be more disruptive to fellow employees and that their replacements might take longer to become as productive. There may also be a degree of loss of important knowledge to consider. In particular instances, some of the other factors might be relevant but viewed as a category they would tend not to apply. So overall, we might consider it reasonable to place Category 1 employees near the bottom of the scale, and Category 2 employees near the top.
Our final estimates:
Category 1: 50%
Category 2: 75%
It must be noted that these are only rough estimates but even so, they will be of value when decisions have to be made later on, determining priorities and assessing possible returns on investments for those retention strategies under consideration.
References:
- Development Dimensions International
- Competing For Talent - Nancy Ahlrichs
- The HR Scorecard - Becker, Huselid & Ulrich
- Managing Employee Retention - Phillips & Connell
© Colin Brown 2004
From United Kingdom, London
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Dear Colleagues,
I would like to quickly acknowledge the contribution of Collin Brown on this topic. However, just to recap, some of the costs of employee turnover include, but are not limited to, the following:
- Cost of administering resignation
- Recruitment costs
- Selection costs
- Cost of covering during the vacancy period, especially if a relief officer has to come from a branch of the company
- Administration of the recruitment and selection process - tests, etc.
- Induction training for the new employee(s)
- Cost of training - relevant seminars, fast-track courses, etc.
- Cost of employment itself - official car + driver, the package depending on the status
- Legal or cost of litigation - this comes to mind depending on the nature of the exit by the erstwhile employee to be replaced
Many of these costs consist of management or administrative staff time, but direct costs can also be substantial where advertisements, agencies, or assessment centers are used in the recruitment process.
Thanks
From Nigeria, Lagos
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7I would like to quickly acknowledge the contribution of Collin Brown on this topic. However, just to recap, some of the costs of employee turnover include, but are not limited to, the following:
- Cost of administering resignation
- Recruitment costs
- Selection costs
- Cost of covering during the vacancy period, especially if a relief officer has to come from a branch of the company
- Administration of the recruitment and selection process - tests, etc.
- Induction training for the new employee(s)
- Cost of training - relevant seminars, fast-track courses, etc.
- Cost of employment itself - official car + driver, the package depending on the status
- Legal or cost of litigation - this comes to mind depending on the nature of the exit by the erstwhile employee to be replaced
Many of these costs consist of management or administrative staff time, but direct costs can also be substantial where advertisements, agencies, or assessment centers are used in the recruitment process.
Thanks
From Nigeria, Lagos
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Here are the items that employers put into the "Business Costs and Impacts of Turnover" Excel workbook aka "The Bliss-Gately Tool" for calculating the cost to replace an employee. The list is derived from Bill Bliss' article, "Cost of Turnover."
Job Title
Hourly rate for vacant position
Hourly rate for person who fills in
Hourly rate for the vacant position's supervisor
Hourly rate for the vacant position's manager
Hourly rate for the vacant position's director
Hourly rate for the Internal Recruiter
Hourly rate for Internal Recruiter's Assistant
Hourly rate for hiring department's staff
Hourly rate for orientation personnel
Hourly rate for training personnel
Number of weeks the person fills-in
Lost productivity of fill in person ( 0.00 to 1.00 )
Cost of a formal exit interview
Hrs by mgr. to understand what work remains.
Hrs by mgr. to conduct separate exit interview.
Cost of training ee by company personnel
Cost of training ee by ext. programs...inst.
Licenses...certifications paid for by the company
Depart. Prod. lost because the person is leaving.
Cost of depart. staff discussing reactions….
No. of weeks departing ee has lower perf.
Departing employees' lower perf. (0.0 to 1.0 )
No. of ees who go with departing employee
Average cost of losing these departing ees
Dollar cost of disrupting the team
Cost of severance package
Cost of benefits provided to employee
Value of lost knowledge, skills and contacts
Years of service
Annual premium (0 to 1.0 )
Increased unemployment insurance premiums
Cost of time spent to prepare for unemp. hearing
Cost of third party to process unemp. claim
Cost of lost customers
Cost to retain the customers that want to leave
Number of weeks the position stays vacant
Advertising (classifieds and display ads)
Agency fee (@ 20 - 30% of annual compensation)
Employee referral …
Internet posting (e.g., $300 - $500 per listing.)
Number of Internet postings
Sign-on bonus
Relocation package
Internal recruiter's time (min. of 30 to 100+ hrs...)
Recruiter's assistant's time (a minimum of 20 hours)
Supervisor's hours
Manager's hours
Director's hours
All Other staff hours
Admin. cost/resume (handling/processing/respndng)
Average number of resumes processed
Hours spent interviewing internal candidates
Hours by internal candidates in interviewing
Drug screen
Educational verification
Criminal background checks
Other reference checks
Number per position filled…
Skills test
Abilities test
Aptitude test
Attitude test
Values test
Behavior tests
Number of applicants tested per position filled
Job Fit Assessment…
Hours new employee spends in orientation
Hours spent by orientation personnel
Orientation materials
Department training development and delivery
Hours in training by new employee
Hours of training (design and delivery)
Training materials
Computer costs
Other equipment costs
Hours by supervisor
Weeks at a 75% lost rate (Use 2 , 3 or 4 )
Weeks at 50% loss rate (Use 1 to 8 )
Weeks at 25% loss rate (Use 1 to 8 )
Hours by supervisor (over a 5 month period)
Total hours of coworkers (over a 5 month period)
Cost of mistakes by new ee…
Cost of lost management time (opportunity costs)
Non-completion or delivery of a critical project...
Manager's lost productivity (hrs) by losing key staffer
Director's lost productivity (hrs) by losing key staffer
To put the person on the payroll
To secure computer and security passwords
Identification and business cards
Internal and external publicity announcements
Tel. hookups and establishing email accounts
Establishing credit card accounts
Leasing equipment (...cell phones, automobiles, etc.)
Hours Manager needs to develop trust, etc.
Company Revenue (budgeted)
Number of sales people
Weeks in budget
Weeks at a 25% Productivity Rate (1, 2 , 3, 4 or more)
Weeks at a 50% Productivity Rate (Use 1 to 8 or more)
Weeks at a 75% Productivity Rate (Use 1 to 8 or more)
Number of employees
Weeks position is vacant
Profits as a percent of sales
Losing a person in a key or critical job.
Competitors seeker more employees or customers.
Competitor may learn business secrets and ideas.
"We don't care" so they and look for new supplier.
"We are going down hill…"
The following is the data used for Dr. John Sullivan's recommended method for evaluating each manager's turnover rate. If a manager loses foog employees that is bad, if the manager loses bad employees that is good. Similar turnover rates may not mean the same thing.
Type 1 - Top Performer Weighting Factor
Type 2 - Average Performer Weighting Factor
Type 3 - Bottom Performer Weighting Factor
Performance Appraisal Rating for Type 1
Performance Appraisal Rating for Type 2
Performance Appraisal Rating for Type 3
Number of Type 1 employees that left
Number of Type 2 employees that left
Number of Type 3 employees that left
Percent of salary to cover benefits)
From United States, Chelsea
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Job Title
Hourly rate for vacant position
Hourly rate for person who fills in
Hourly rate for the vacant position's supervisor
Hourly rate for the vacant position's manager
Hourly rate for the vacant position's director
Hourly rate for the Internal Recruiter
Hourly rate for Internal Recruiter's Assistant
Hourly rate for hiring department's staff
Hourly rate for orientation personnel
Hourly rate for training personnel
Number of weeks the person fills-in
Lost productivity of fill in person ( 0.00 to 1.00 )
Cost of a formal exit interview
Hrs by mgr. to understand what work remains.
Hrs by mgr. to conduct separate exit interview.
Cost of training ee by company personnel
Cost of training ee by ext. programs...inst.
Licenses...certifications paid for by the company
Depart. Prod. lost because the person is leaving.
Cost of depart. staff discussing reactions….
No. of weeks departing ee has lower perf.
Departing employees' lower perf. (0.0 to 1.0 )
No. of ees who go with departing employee
Average cost of losing these departing ees
Dollar cost of disrupting the team
Cost of severance package
Cost of benefits provided to employee
Value of lost knowledge, skills and contacts
Years of service
Annual premium (0 to 1.0 )
Increased unemployment insurance premiums
Cost of time spent to prepare for unemp. hearing
Cost of third party to process unemp. claim
Cost of lost customers
Cost to retain the customers that want to leave
Number of weeks the position stays vacant
Advertising (classifieds and display ads)
Agency fee (@ 20 - 30% of annual compensation)
Employee referral …
Internet posting (e.g., $300 - $500 per listing.)
Number of Internet postings
Sign-on bonus
Relocation package
Internal recruiter's time (min. of 30 to 100+ hrs...)
Recruiter's assistant's time (a minimum of 20 hours)
Supervisor's hours
Manager's hours
Director's hours
All Other staff hours
Admin. cost/resume (handling/processing/respndng)
Average number of resumes processed
Hours spent interviewing internal candidates
Hours by internal candidates in interviewing
Drug screen
Educational verification
Criminal background checks
Other reference checks
Number per position filled…
Skills test
Abilities test
Aptitude test
Attitude test
Values test
Behavior tests
Number of applicants tested per position filled
Job Fit Assessment…
Hours new employee spends in orientation
Hours spent by orientation personnel
Orientation materials
Department training development and delivery
Hours in training by new employee
Hours of training (design and delivery)
Training materials
Computer costs
Other equipment costs
Hours by supervisor
Weeks at a 75% lost rate (Use 2 , 3 or 4 )
Weeks at 50% loss rate (Use 1 to 8 )
Weeks at 25% loss rate (Use 1 to 8 )
Hours by supervisor (over a 5 month period)
Total hours of coworkers (over a 5 month period)
Cost of mistakes by new ee…
Cost of lost management time (opportunity costs)
Non-completion or delivery of a critical project...
Manager's lost productivity (hrs) by losing key staffer
Director's lost productivity (hrs) by losing key staffer
To put the person on the payroll
To secure computer and security passwords
Identification and business cards
Internal and external publicity announcements
Tel. hookups and establishing email accounts
Establishing credit card accounts
Leasing equipment (...cell phones, automobiles, etc.)
Hours Manager needs to develop trust, etc.
Company Revenue (budgeted)
Number of sales people
Weeks in budget
Weeks at a 25% Productivity Rate (1, 2 , 3, 4 or more)
Weeks at a 50% Productivity Rate (Use 1 to 8 or more)
Weeks at a 75% Productivity Rate (Use 1 to 8 or more)
Number of employees
Weeks position is vacant
Profits as a percent of sales
Losing a person in a key or critical job.
Competitors seeker more employees or customers.
Competitor may learn business secrets and ideas.
"We don't care" so they and look for new supplier.
"We are going down hill…"
The following is the data used for Dr. John Sullivan's recommended method for evaluating each manager's turnover rate. If a manager loses foog employees that is bad, if the manager loses bad employees that is good. Similar turnover rates may not mean the same thing.
Type 1 - Top Performer Weighting Factor
Type 2 - Average Performer Weighting Factor
Type 3 - Bottom Performer Weighting Factor
Performance Appraisal Rating for Type 1
Performance Appraisal Rating for Type 2
Performance Appraisal Rating for Type 3
Number of Type 1 employees that left
Number of Type 2 employees that left
Number of Type 3 employees that left
Percent of salary to cover benefits)
From United States, Chelsea
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Dear Bob,
It would be great if you could provide a live example for calculating the turnover cost for a software engineer. There are several articles and forums that state and mention methods to calculate it; however, the challenge lies in implementing the equation in a real-life scenario.
Thank you.
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It would be great if you could provide a live example for calculating the turnover cost for a software engineer. There are several articles and forums that state and mention methods to calculate it; however, the challenge lies in implementing the equation in a real-life scenario.
Thank you.
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It seems the Brown article is infatuated with a liability point of view. But what's a good way to reduce these overheads on companies to minimize the impact? At least, the first common procedures can be generalized across the industry. Standards like P-CMM are commonplace in IT and may enhance the experience listed in a resume categorically. Costs can be shared, and companies have quantitative data to add to their balance sheets.
From India, Delhi
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From India, Delhi
Acknowledge(0)Amend(0)CiteHR is an AI-augmented HR knowledge and collaboration platform, enabling HR professionals to solve real-world challenges, validate decisions, and stay ahead through collective intelligence and machine-enhanced guidance. Join Our Platform.
EMPLOYEE TURNOVER.pdf
EMPLOYEE TURNOVER CALCULATOR.xls