Hueman Blog

What's the True Cost of Employee Turnover?

Posted by Derek Carpenter

When an employee leaves your business, whether it's through resignation or termination, it's not cheap. The costs associated with employee turnover are both tangible and intangible.

Think of the steps it took for you to originally hire that individual. How did they hear about your company?  Was it a paid ad on Facebook? A job posting on Indeed?  Consider the training time, the office space, the technology and tools and of course, the salary. This is just skimming the surface.

You invested time and money into that employee. Which you should, but that's what makes the cost of employee turnover so shocking.  

What goes into average cost of employee turnover calculations?

There are both qualitative and quantitative figures to consider when calculating the average cost of employee turnover, including:

  • Time spent on filling the vacant position, including job approvals, recruiting, interviewing and offer.
    • Who was involved?
    • How many hours did they spend in this efforts?
    • What did that cost the organization?
      • Example: Your company needed to hire a Sales Representative.  And, you do your recruiting internally via your HR team who is all paid average US salaries, performing an average amount of time to recruit and hire for the role.
        • HR Specialist @ 40 hours @ $16.83 p/hour = $673
        • HR Director @ four hours @ $38.46 p/hour = $153
        • Sales Manager @ 12 hours @ $28.85 p/hour = $346
  • Productivity lost from a poor performer or the vacancy of the role.  And, then from the time it may take to bring the new employee up to speed.
    • Example: The simplest way to determine the labor productivity for an organization is to just determine an average across all position types. Let's say your company generates $80,000 worth of revenue in a week with 50 employees. Divide that revenue by the number of employees, and you get your labor productivity figure for a single week per employee.  In this example, each employee is associated with $1,600 in revenue per week. Annualized, this figure grows to $83,200 of revenue assigned to each employee, or 8.6 percent of the businesses' total revenue. For our example here, let's assume the job is vacant for four weeks and there were no other productivity losses. This equates to $6,400.
  • Hard costs associated with recruiting and hiring a new employee, including marketing and recruitment costs.
    • Example: This figure can vary dramatically, based on the job type, the location, the level of urgency and priority and the job sites it may be marketed on.  Here are the latest costs for some of the more popular job sites, according to each site's pricing pages as of May 2018.
      • Craigslist: $15 on average per post per month, with certain markets costing upwards of $35 and as high as $75 (San Francisco!)
      • Monster: $325 per standard job ad for 30 days
      • Indeed: Driven by a pay-per-click model, it allows the most flexibility and control for an employer.  On average, Indeed recommends a budget of $15 per day for entry level professionals. So, if the Sales Representative job is posted on Indeed for 30 days, the recommended budget is $450.
      • LinkedIn: $495 per post per 30 days
    • If the job was posted on all the above sites for 30 days (which also assumes you filled that job in just 30 days), the cost in a single month to promote a single Sales Representative job could reach $1,285. But, let's assume you just put it on Indeed, the cost is still $450 per job per month.
  • Time spent on orientation, training and employee onboarding. Similar to the time spent on filling the role in the first place, you must determine:
    • Who was involved?
    • How many hours did they spend training?
    • What did that cost the organization?
    • Example: Your company has hired five new employees and puts all employees through a two-day formal orientation/training program, with representatives from key departments "stopping in."  The cost for time in just those two days in this example are:
      • Training Specialist @ 20 hours @ 16.83 p/hour = $337
      • HR Director @ two hours @ $38.46 p/hour = $77
      • Executive Team Member @ 30 minutes @ $120 p/hour = $60
      • Department Leads @ 3 hours total @ $48 p/hour on ave = $144
      • If all costs are totaled and then divided by the five new employees, the cost per employee for a two-day orientation/training program is $124

If we total the above measurable costs in our example associated with employee turnover, at minimum, the cost for a single Sales Representative position turning over (assuming average and standard time and marketing investments) is $8,146 to an organization. Whoa.

The mentioned points above still don't even consider the overall burden it takes on employee morale, a department or a manager then responsible for training the new employee and the productivity losses there!

Now, do the math for your organization using data that you can average, then run that cost against your employee turnover rate.  This will give you a baseline that you can work to improve upon.

Employee turnover is inevitable but, having a clearer focus on the true costs of employees leaving and coming into your business, will help your cost allocation. It will give you insights into aspects of the recruitment and hiring process that you may want to improve, outsource or decrease costs with.

About half of RNs and LPNs work overtime. The RN average overtime premium ranges from $14.55 to $59.39 Of the nurses who work overtime:

Pie chart showing RN average overtime

To learn more about ways to decrease employee turnover, check out this eBook.

Topics: recruitment