How to Calculate The Cost of Employee Turnover

by Laura Belyea, COO at KonnectAgain

Losing a skilled employee is a serious blow to any company. Aside from the financial value they add to an organization, they are part of the culture and usually add intangible value by leveraging their experience and skills for the company. That being said, getting a skilled employee back can be a greater asset than if they had stayed in the first place.

It can be challenging to determine the exact dollar value of an employee leaving. The best way to consider it is by thinking about time value. The employee’s monthly salary is a good place to start. If a company takes 3 months to fill the vacant position, it would be fair to say that 3 months of the previous employee’s salary has been lost. If other employees must work overtime to maintain productivity, the overtime cost is a direct result of losing the previous employee. One of the biggest costs of losing an employee is training their replacement. It takes an average of 3 to 6 months for a new hire to begin adding value to a company in most industries.

While the direct, calculable costs are important, it is important to also consider the goodwill costs. Employees will usually build personal relationships with suppliers and customers. If an employee leaves, a new relationship would need to be created.

The calculable costs of an employee leaving are:

  • Days the position is vacant X the daily salary of the former employee.
  • Hours the management team spends screening resumes and conducting interviews.
  • Agency fees for recruiting a replacement.
  • Any overtime or temporary worker payments.

The real value of an employee is their ability to apply their expertise to company specific tasks. When a former employee returns to a company, they bring newly gained experience into the company. The time they spent in other companies or industries will give them new perspectives that can be applied to their old tasks. This usually fosters innovation and improvement.

In terms of the direct cost saving of re-hiring a former employee, most of the recruitment costs are mitigated. There is no need to train them, the interview process should be swift, recruitment agencies are not needed and the former employee will be able to add value immediately.

Getting former employees to return must be done by creating a company culture that encourages it. Every step of the exit process should be done with the objective of leaving the door open. Employees who are leaving need to feel that there is no animosity.

Once an employee has left, efforts should be made to keep in touch with them through social media platforms like LinkedIn and Facebook.

Currently, it is estimated that people will change jobs 7 times during their career. With that in mind, it is critical to consider the prospect of having each employee in a company leave at some point. The cost of hiring new employees can be staggering. The benefits of re-hiring old employees should then become quite clear.

About the author
Laura’s role is to successfully support the start up growth and strategy for KonnectAgain, as well as provide product support with her expertise within the HR industry. Previously posts were director of HR & operations in Telefonica, Elizabeth Arden and ICON