Calculate the cost of employee turnover

Here's how to calculate the cost of employee turnover (and what you can do to increase retention at your organization.)

Matthew Reeves

CEO of Together

Published on 

September 29, 2018

Updated on 

Time to Read

mins read time

Employee turnover is extremely costly for businesses. It very much depends on the size of your business, but even for a company with a couple thousand employees the annual cost to your business could be in the millions.

To understand the cost better we have created a the Employee Turnover Cost Calculator.

To calculate the annual cost to your business we take into account a number of factors: number of employees, turnover rate, average salary, and cost of a turned employee.

Number of employees is fairly straight forward and should be readily available to an HR professional.

Turnover rate is the amount of employees that leave your company in a year expressed as a percent of the total number of employees. To calculate it, take the number of employees who have left your company in the past 12 months and divide it by the average total number of employees you had over the past 12 months.

Average salary is another fairly straightforward metric that HR should have available to them. If not, it can be calculated by dividing the total expenditure on salaries divided by the total number of employees. If you want to get really precise you should actually be using the average salary of employees who left in the past 12 months. Remember that there’s a difference between calculating gross wages and net wages. If you want to get a more accurate estimate for the cost of employee turnover, use gross wages, as it includes everything you pay out to the employee before they pay taxes.

Cost per turned employee is the amount that it costs a company each time an employee leaves expressed as a percentage of the person’s salary. Calculating this for yourself can be quite challenging and depends a lot on the role. Some potential things that could be included are:

  • Lost revenue from that role (particularly for sales)
  • Cash cost of training a new employee
  • Opportunity cost on the productivity gap between the new employee and lost employee

The good news for you is that some research already exists on this. Typically the cost is between 50% and 75% of an employees salary, but could be even more! You can read more about this here.

If high turnover cost is a problem for your business, you should consider the benefits of a best-practice mentorship program. Mentorship has been demonstrated to have a strong improvement on employee retention and productivity.

Together offers a mentorship platform that supports the mentorship process from start to finish. In particular, not only does it support the pairing process, but it supports managing the relationship once the pairing is made. The platform helps facilitate the scheduling of mentors and mentees meeting and ensuring that it’s happening at the right frequency. It also automates the follow-up and collection of feedback from each and every session.

About the Author

scrollbar code:
close button

Hear how they started with Together