It's not cheap when an employee leaves your business, whether through resignation or termination. The costs associated with employee turnover are both tangible and intangible.
Think of the steps it took for you to hire that individual initially. 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, tools, and of course, the salary. These items only skim the surface.
You invest time and money into your employees, which you should, but that's what makes the cost of employee turnover so shocking!
What goes into the 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 filling the vacant position, including job approvals, recruiting, interviewing, and offers.
- Who was involved?
- How many hours did they spend on these efforts?
- What did that cost your organization?
- Example: Pretend that your company needs to hire a Sales Representative. You perform the search internally using your HR team, all paid average US salaries. Here's what the average amount of time to recruit and hire for this role may look like:
- 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 loss from a poor performer or a vacancy in the role.
- The most straightforward way to determine the labor productivity for an organization is to select an average across all position types.
- Example: Picture that your company generates $80,000 worth of revenue in a week with 50 employees. Divide that revenue by the number of employees, and you will get your labor productivity figure for a single week per employee.
- Now assume that 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.
- Let's assume the job is vacant for four weeks and there were no other productivity losses. Your vacancy cost for a single position is equal to $6,400.
Hard costs associated with recruiting and hiring a new employee, including marketing and recruitment costs.
- Example: Hard costs can vary dramatically based on the job type, location, level of urgency, and 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 specific 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 an employer the most flexibility and control. 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.
- Who was involved?
- How many hours did they spend training?
- What did that cost the organization?
- Example: Imagine that your company has hired five new employees and puts them through a two-day formal orientation/training program, with representatives from key departments "stopping in." The time costs in just these two days 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
The mentioned points above don't even consider the overall burden it takes on employee morale, a department, or a manager.
Now, do the math for your organization using data that you can average, then run that cost against your employee turnover rate. This calculation will give you a baseline that you improve.
Employee turnover is inevitable, but having a clearer focus on the true costs of employees leaving and coming into your organization, will help you allocate costs. It will also give you insights into aspects of the recruitment and hiring process that you may want to improve, outsource or decrease.
To learn more about decreasing your employee turnover, check out this eBook.