How to Calculate Turnover Cost
August 5, 2010 2 Comments
Human capital is not listed on the balance sheet. As such, most businesses spend a great deal of time on the recruiting function. A company can also invest in human capital on the back end by paying attention to employee turnover. Turnover is when an employee leaves a company. High turnover can affect the bottom line and so it helps for management to know how to calculate the cost of turnover.
Determine the average cost for one employee leaving your company. This depends on the nature of the job. In general, the longer it takes to learn the job, the higher the turnover cost. Let’s say it takes 3 months for the average employee to ramp up. This is 25 percent of the year which represent 25 percent of the employee’s annual salary.
Determine the cost of the benefits provided after employment. This depends on the company. Let’s say benefits are 30 percent of wages.
Calculate the turnover cost from lost time. Multiply the annual wage by 25 percent. Let’s say the annual wage is $10,000. The turnover cost is $2,500 ($10,000 x .25).
Calculate the turnover cost associated with paying benefits. The answer is $750 ($10,000 x .30 x .25).
Sum total costs from salary and benefits for the total turnover cost per employee. The answer is $3,250 ($2,500 + $750).
Determine the total number of employees that left in the past year. Let’s say 10 employees left the organization.
Multiply the number of employees that left by the cost of turnover per employee. The answer is $32,500 ($3,250 x 10).