How to Calculate Employee Turnover Cost

A generally ignored cost

In my experience of working with different types companies in the past 25 years, I have observed that companies either do not consider this cost at all or even if they do it is in limited terms of advertising costs, travel compensations etc.

When considered in it’s entirety, cost of employee turnover can actually have a noticeable impact on companie’s productivity and profitability. Studies show that even a junior employee leaving the company can cost 33% of his annual compensation to the company. At more senior positions, this cost can go as high as 60-70% of the annual compensation.

Data points to accurately calculate cost of employee turnover

  1. Daily rate of departed employee’s salary plus benefits
  2. Number of days the position will remain open before you can fill it
  3. Daily rate of manager’s salary who is responsible for recruiting and screening applicants
  4. Estimated cost of advertising for the open position
  5. Estimated hours spent on screening resumes
  6. Estimated hours spent interviewing, including phone screens and think of all people involved
  7. Cost to conduct background check
  8. Daily rate of hiring manager or trainer’s annual salary
  9. Total days hiring manager or trainer will spend with new employee
  10. Number of working days in the new hire’s first 3 months (the onboarding and ramp-up period)

Employee turnover cost example

Given below is an example based on a company with 125 employees and a net annual revenue of INR 5 Cr. The example considers the data points above to calculate the cost turnover on exit of an employee with a CTC of INR 6 Lakhs. 

Please drop me a message on contact page, I will be happy to share the excel file of the above calculation sheet. 

How to accurately calculate annual employee turnover cost

Employee turnover cost is calculated by taking your vacant position coverage cost plus cost to fill the vacant position plus onboarding & orientation costs plus the productivity ramp up cost multiplied by the number of employees lost in that position in a given year multiplied by 12 to give you your annual rate.

If the company in the above example has just 9 percent employee turnover rate (which is a very good turnover rate for most industries) and a conservative average INR 3,00,000 annual employee salary,  the estimated turnover cost for the company will be INR 34,92,157 annually i.e. 7% of net revenue. 

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