The Cost of Replacing an Employee

What gets measured gets managed. With the estimated costs of employee turnover ranging from 33% up to 200% of the departing employee’s salary, it is imperative for organizations to understand exactly what goes into the overall cost of employee turnover. There are multiple layers in beginning to calculate the exact costs of turnover which is why the estimated costs of turnover have such a disparity. Measuring costs like absenteeism, workforce reduction, loss of productivity, and loss of contacts and relationships, are difficult to calculate the exact cost, but there are three costs that have an exact measurable amount to the overall turnover cost.

Those aspects of the turnover cost equation that are more reliable in measuring the exact cost include:

1. Separation costs include Separation/severance pay, benefits continuation, and exit interviews.
2. Replacement costs include Job opening advertising and employment agency fees, pre-employment screening, evaluation and selection, and onboarding costs.
3. Training costs include: informational literature, training programs, and instructor costs

Summing up the total costs of the separation, replacement, and training costs is just the tip of the iceberg in calculating the total cost of employee turnover. Next, organizations will need to add the more difficult costs of transition and opportunity costs, absenteeism costs, and the costs of productivity loss to begin to get an accurate overall cost of employee turnover.

With these expenses being just the beginning of the process of measuring the overall cost of employee turnover, it is critical for organizations to find ways to limit the amount of turnover they experience. The best way to do this is by understanding why each employee exits the company. After conducting the workforce research your organization will understand why each employee leaves the company, and then be able to implement changes to help retain employees.