What costs should we count when an employee leaves?
When an employee leaves, count what it takes to replace them, and also what the organization loses while the position is open and the new employee is still learning the job. Many organizations track the first category and never calculate the second. Both should be included when estimating what turnover is costing your organization, even if some of the costs have to be estimated.
What to count, and where the number usually sits
| Cost | What it includes | Where to look for it |
|---|
| Recruiting | Advertising, agency fees, and the hours staff spend screening and interviewing | HR records and hiring managers' time |
| Onboarding and training | Orientation, training time, and the hours coworkers spend teaching the job | Training records and supervisors |
| The open position | Overtime, temporary help, and work that is delayed or not done | Payroll and operations |
| Getting up to speed | The weeks or months before a new employee is fully productive | Supervisors' estimates |
| Leaving | Payouts, paperwork, and exit conversations | HR and payroll |
Not every line needs to be exact. Estimate where necessary, document how each estimate was made, and use the same method every time so the figures can be compared across departments and from year to year.
Why is our number so different from the ones we read online?
Your turnover-cost number differs from the ones you read online because each published study counts different costs for different kinds of jobs. The Center for American Progress reviewed 30 case studies from 11 research papers. For most jobs, it found a typical cost of about 21 percent of the employee's annual salary. For jobs paying under $30,000 it was 16 percent, and for senior or highly specialized jobs it ran as high as 213 percent.
Gallup gives a wider range. It estimates that replacing an employee costs from one-half to two times the employee's annual salary, and it calls that estimate conservative.
Both numbers can be right, because they measure different things. Your organization's figure will depend on the kinds of positions you're replacing, how long those positions remain open, and how long it takes a new employee to become fully productive. A published range is a reasonable placeholder while you gather your own records, as long as you identify it as a published estimate rather than your organization's actual cost.
What does turnover cost that never shows up in the budget?
Some of the biggest costs of turnover are carried by the employees who remain, and those costs never show up in any budget. When someone leaves, their responsibilities don't disappear. Coworkers cover them, often for months, in addition to their own jobs. That can mean longer hours, more stress, and less room for life outside work for the very employees your organization most wants to keep.
The costs nobody invoices
- Extra pressure on the employees who remain. They absorb the additional responsibilities, help train the replacement, and may begin to feel overwhelmed themselves.
- Knowledge that leaves with the employee. How the work gets done, who to call, and what was tried before are rarely written down.
- Disruption to the team. Relationships with coworkers, customers, and partners have to be rebuilt each time.
- What the employees who stay conclude. Employees notice when respected coworkers leave, and they may begin asking themselves whether they should stay.
These costs are difficult to express in dollars, but that doesn't make them less important. Don't assign them a dollar amount you can't support. Instead, include them when discussing the full cost of turnover so your leadership team understands that turnover has costs beyond those that can be calculated in dollars. If your employees are already telling you they're stretched, Our people say they have no work-life balance. What can we actually change? looks at what an employer can do about it.
Does knowing the cost tell us what to fix?
No, knowing what turnover costs doesn't tell you what to fix. It tells you how large the problem is, and it can show you where in the organization the problem is largest, but it can't identify what is causing it. Turnover is an outcome, and the question that matters is what's producing it.
Employees may be leaving because of pay, scheduling, supervision, workload, advancement opportunities, workplace culture, or something else entirely. The reasons may also differ from one department or shift to another. An organization-wide cost figure can hide those differences in the same way an organization-wide turnover rate does.
Examine your cost the same way you would examine turnover itself: by department, shift, facility, role, and how long employees had been with the organization. That comparison shows you where to start asking questions. It still won't explain why employees are leaving, and understanding why comes before choosing a solution.
How to find out is a separate question. Why do good employees keep leaving when we pay competitively? covers the common causes. If you're weighing whether you need someone outside the organization to help, Is our turnover problem worth bringing in outside help? covers that.
The Grantibly perspective
Lauren's perspective
We treat workforce development as a business issue as well as a people issue. Turnover means repeated recruiting, onboarding, and training costs, and it also means vacancies, overtime, lost knowledge, and more pressure on the employees who remain. Leaders are right to want a number.
When a leader asks us what an assessment or an initiative will cost, we think there's a second question to ask alongside it. How much will it cost the organization if the turnover continues? Organizations spend a great deal replacing employees they already recruited and trained. Without understanding why those employees are leaving, they may continue spending money on solutions that don't address the reasons people are leaving in the first place.
We also avoid making unsupported promises about return on investment. No one can responsibly tell you in advance how much turnover will drop or how much money you'll save. What good information can do is help you determine where an investment is likely to make a meaningful difference, and where it isn't.
