Cost of Employee Turnover

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 realise.

In the worst case scenarios the loss of a single individual can put at risk a major project, 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 of 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 centres, 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 oppportunities

Lost productivity until 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 calculating 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 generalised) 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, to 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