The High Cost of Turnover

Listed below are some of the direct and indirect costs typically associated with employee turnover. Even though some of these costs may be difficult to estimate, they are no less important than those that are easily quantifiable.

Cost of communicating position availability: this depends on the method of advertisement, classified ads, recruiting or temp. agency fees, television commercials, radio spots, etc.

Pre-employment administrative functions: time required for distributing and accepting applications, and arranging interview times.

Screening costs: these vary considerably and can include: reviewing applications, ordering background checks, realistic job previews, reviewing resumes, and checking references.

Testing: conducting interviews (preparation, administration, and scoring time), cost of other testing materials (aptitude, achievement, or other tests) and time for scoring and interpretation. Also add time for integration if multiple tests are used and compared.

Training: cost of trainers' and trainees' time and materials and/or other resources used in training. Cost for special certification requirements. If job shadowing is used, estimate the costs due to lost productivity of supervisors (they cannot be nearly as productive while training someone).

Costs due to low initial productivity of new hires. Job performance of new hires usually increases gradually as they become more integrated in their new environment, and become more familiar with their job duties. Thus, they are not likely performing at an optimal level for some period of time, resulting in an indirect cost to the organization.

Exit interview: cost of interviewer's time (both preparation and administration time and terminated employee's time). Cost of time is usually calculated as an hourly pay rate.

Administrative functions related to separation: time required to delete employee's records from the system, and to arrange an exit interview meeting.

In any situation where the cost is associated with someone's time (e.g., reviewing resumes), always estimate the amount of time required per person (e.g., 20 minutes), and multiply it by the staff member's hourly rate. Try to think of everyone involved in the process of hiring (or terminating) an employee: what they need (materials), what their time is worth, how long each step takes, and how often this is done per year.