How to better estimate the true cost of employee turnover

Employers have long asked HR professionals to capture the cost of turnover by tracking employee replacement costs, often including activities like recruiting, third-party background checks, drug testing, signing bonuses, relocation, uniforms, onboarding, and initial training. 

By looking at this data, it’s possible to estimate the average cost of a new hire. Of course, it’s easy to oversimplify the exercise by ignoring key points that must be considered when analyzing the cost of turnover, and it’s also easy to overcomplicate the exercise by getting lost in the weeds of data.

Oversimplification during analysis can cause a company to take the wrong actions for retention improvement when the cost estimate is primarily focused on hiring costs and ignores the full impact of the employees who quit. 

For example, the data may suggest to increase pay for all employees in a job title that has the most voluntary quits in the past year. A deeper look might show that the job has an extremely short training period and the company can fill the positions relatively easy.  A better decision might be to spend more on other job titles that are harder to fill, require more skills up front, and have fallen beneath current market rates.

Overcomplication of the analysis can also easily happen when grinding through data. While it's technically more accurate to look at every detail to estimate turnover costs, many times there's no need to let the desire for granularity slow down a review.

How important is it to know the exact number of training hours by employee by pay level, age band, service level and by supervisor? That information might be informative, but it's not needed to build a turnover cost model.

Don't forget Safety, Quality & Productivity!

New hires can take time to learn safe work methods, and employee injuries are often higher when large numbers of new employees are hired in a short time frame.

New employees frequently make more quality errors that can lead to higher costs that are hard to pinpoint in turnover cost reviews.

When analyzing the impact of turnover on a business, the drain on productivity cannot be overlooked or underestimated. Many employees work in jobs that take years to fully learn, and a new hire replacement cannot be expected to perform at the same level overnight. 

It's hard to get a group of managers to agree upon the right percentage to use to estimate lost productivity, but it's a number that merits consideration when building a turnover cost model.

The infographic included covers other key points that should be considered when analyzing turnover data and preparing action plans for improvement.