What Does Turnover Cost?
Calculating the cost of turnover accurately and comprehensively is difficult. There are many formulae that reputable organizations have developed in an effort to make it easier for companies to calculate; these can be found through careful internet searches.
The important point that the most reputable formulae make is that there are essentially two kinds of costs involved: direct and indirect.
Direct costs of turnover imply out-of-pocket expenses, and indirect costs involve less quantifiable, but nevertheless significant, costs. Here are some examples of both:
Some Direct Costs of Turnover
- Administration costs: exit interviews, payroll changes, security clearances if needed, etc.
- Severance pay
- Covering a vacancy with temps or overtime
- Recruitment and selection costs: advertising a vacancy, reviewing applications, conducting interviews, possible travel expenses, credit/background checks, etc.
- On-boarding new hires: orientation, training, etc.
Some of the Indirect Costs of Turnover
- Loss of expertise and organizational memory
- Missed deadlines and disruptions to workflow
- Decreased productivity among remaining employees
- Increased absenteeism due to stress
- Impaired customer service or customer responsiveness
- Reduced morale, which may cause even more turnover
Estimates of the cost of a single turnover for an employee who is paid $8/hour have ranged from $3,500 to $5,688,* and these costs are estimated to have been incurred regardless of the employee's tenure.
These estimates make it clear that losing an employee, and especially a trained, experienced, and productive employee, is expensive for the company.
*Sources of information: U. S. Department of Labor, American Management Association, Society of Human Resource Management (SHRM), Cornell University Hotel School, and Coca Cola Retailing Research Council.