Calculating the true costs of employee turnover

Everybody knows employee turnover can be costly – especially when it’s the wrong employees turning over (i.e., those you want to keep).

But you might not realize just how costly it is. HR expert William Rothwell, in his book “Effective Succession Planning,” suggests you create a worksheet to help you calculate the costs of an employee’s departure.

Here are some suggested entries:

• Temporary replacement. Include overtime, temp costs and/or additional sick/personal time because of a heavier workload.
• Manager’s time spent planning the replacement.
• Lost productivity. Figure 50% of the position’s salary for each week it is vacant.
• Lost knowledge. Calculate 50% of the quitting employee’s annual pay.
• Severance pay and/or benefits.
• Loss of customer revenue, if the employee was in a customer contact or customer support position.
• Advertising the job externally and/or posting it internally.
• Identifying and pre-screening serious candidates.
• Interviews of selected applicants.
• Filing/managing resumes and interview notes.
• Developing and validating, and/or administering pre-employment testing.
• Preparing organizational orientation materials (divide annual cost of these materials by # of new employees) and carrying out orientation.
• Reduction in productivity for employees who “show the ropes” to the new hire.
• Mistakes made by the new hire.

A final point: When valued employees leave, be sure to conduct a thorough exit interview. Finding out why a good worker decided to leave can help you prevent future attrition.