Calculating the Cost of Employee Turnover

Investing in employee retention is a strategic way to optimize your organization’s finances and keep productivity high. While most employers are aware that attrition can be expensive, the total cost of employee turnover may be higher than many realize.

To calculate just how much a high employee turnover rate could cost your organization, it’s important to be aware of both the hard and soft costs involved.

Hard costs can include:

  • Direct recruiting expenses, such as:
    • Agency fees
    • Advertising costs
    • Background checks
    • Drug screenings
    • Travel expenses
  • Overtime expenses paid to employees responsible for covering the reduced workforce
  • Fees for adding new employees to existing security, technology and company benefits systems
  • Hiring managers’ time and labor for recruiting and training

If a former employee’s departure is involuntary, other hard costs may include severance packages, increased unemployment insurance, legal fees to resolve potential wrongful termination claims and more.

Many employers estimate the total cost of hiring a new employee to be three to four times the position’s salary. The Society for Human Resource Management also estimates that hard costs only amount to 30 to 40 percent of the total cost of employee turnover, with soft costs comprising the remaining 60 to 70 percent.

These soft costs can include:

  • Training HR departments and hiring managers to vet applicants for specific roles
  • Conducting extensive application reviews and candidate interviews
  • Lost productivity among current employees due to the change in workflow
  • Training a new employee and receiving reduced productivity while paying them a full-time salary

Fostering a healthy company culture, thoroughly vetting prospects and prioritizing employee retention can help your organization avoid the steep cost of attrition, whether direct or indirect. Taking intentional steps to listen to employee feedback, investing in building a strong company culture and hiring talent that aligns with that culture will be essential to ensuring stability and success.

For a deep dive into your organization’s employee-related finances, connect with the business consultants at SST.