Calculating the High Cost of Employee Turnover

May 29, 2007 8:10 PM  By

What does it cost you every time you lose a valued employee? Have you considered all the factors (hard dollars, soft dollars, direct costs, indirect costs) you should include? If you haven’t, then it will be very difficult to assess which retention strategies will be profitable for you.

Following is a list of costs you may want to include in your calculation. Some of the items may not apply to your situation; you may not be able to define others. The goal is to realistically define your costs.

The expenses associated with having to replace an employee may include

1) the exit interview. Include the time of both the interviewer and interviewee. If a neutral third party conducts an exit interview (a practice we recommend) consider the additional expense of hiring an impartial contractor.

2) administrative costs associated with the person leaving; you’ll need to stop payroll and benefits, complete forms, etc.

3) administrative costs to bring on a new person: adding to payroll, establishing and securing passwords, issuing ID cards, assigning e-mail accounts, etc.

4) severance or continued benefits to the employee.

5) costs associated with filling the vacant position temporarily
, or the cost due to existing employees filling the void.

6) employment advertising. Finding the right media can be tricky because most members of Generation X don’t read traditional paper-based newspapers; companies have to find new sources to attract employees.

7) hiring costs. Include time to review and explain job requirements, review backgrounds, conduct interviews, discuss the assessments with others, and select a finalist.

8) internal posting. Calculate not only the cost of the internal recruiter but also the time that the internal applicants are away from their job.

9) drug screens, background checks, and reference checks. Calculate the cost per applicant and how many applicants are involved. Many companies screen the final three or four applicants.

10) pre-employment testing to assess skills, abilities, aptitude, attitude, values and behavior.

11) travel and/or relocation.

12) orientation costs, including the time of the participant, the leader, and the materials.

13) training costs including the development and delivery costs plus the salary of the new employee and trainer. Don’t forget the cost of the training materials–manuals, equipment, and technology such as computers.

Kathryn Jackson is founder of Ocean City, NJ-based Response Design Corporation, a call center consultancy.