How much does employee turnover cost? When it comes to Executive search in Toronto, an important topic that gets a lot of discussion is the actual cost of employee turnover. 

It’s not as simple as losing one employee and finding another to replace them. There is a significant cost to this situation and the higher up the ranks you go, the more it will cost to replace someone. Many people discuss this topic online, but what are the real costs of replacing an employee? I’ll look at several ways to measure the actual costs of employee turnover. In this blog I’ll discuss:

  • The financial costs of employee turnover
  • The time costs of employee turnover
  • Overlooked costs of replacing an employee
  • A formula to use to calculate the actual cost of employee turnover 

What Is The Financial Cost Of Employee Turnover?

Depending on what you read, the cost to replace a terminated employee can vary widely. There are so many factors that play a role in employee turnover that it can be challenging to pinpoint an exact cost. 

According to data from the Society for Human Resource Management (SHRM), the average cost per hire was $4,683. The average cost to hire an executive is significantly more – $28,329.

Here’s a more detailed breakdown of costs by percentile:

Cost-per hire

  • 25th percentile – $354
  • Median – $1,244
  • 75th percentile – $4,375
  • Average – $4,683

Executive cost-per-hire

  • 25th percentile – $1,500
  • Median – $8,750
  • 75th percentile – $35,000
  • Average – $28,329

As you can see above, the cost per hire can range widely. However, this is only part of the story. 

Many others estimate the actual cost of employee turnover can be about three times the cost of the job you want to fill. For example, if you are looking to replace a role with a $50,000 salary, the total cost over turnover and replacement of an employee could be in the $150,000 range. This is because there are other costs of employee turnover. They are typically categorized as hard costs or soft costs. 

Hard Vs. Soft Costs of Employee Turnover

SHRM estimated that hard costs account for 40% and the other 60% are soft costs. Here’s an explanation of each:

  • Hard costs: These are expenses that can be measured in exact dollar amounts. These include final pay expenses, wages for temporary employees, fees paid to recruiting firms, costs for job posting advertisements, overtime pay for remaining employees covering for a reduced workforce, and other similar expenses.
  • Soft costs: These are expenses that are not easily tracked on a balance sheet. These include costs related to decreased productivity, time spent by HR and hiring managers on interviews, time spent reviewing resumes, and training time needed for new hires to reach full productivity.

What Are The Time Costs Of Employee Turnover?

There are significant time costs associated with replacing an employee. It’s not the employee who is leaving and the new hire that is impacted. Many people within the organizations also have to dedicate their time. For example, team members of the exiting employee may need to cover work while no one is in the vacant position. Or they may need to put in overtime hours. Then there are time requirements from the hiring manager, executives, human resources and the recruitment team to work through the various stages of separation, recruitment, and productivity. 

Here are some of the tasks that will require time from other employees:

  • Meeting to formulate a plan
  • Reviewing the vacant role and duties
  • Temporarily assigning duties to other employees and management
  • Employees taking on additional work to cover the vacancy
  • Writing the job description and ads
  • Reviewing and screening applications
  • Conducting job interviews
  • Preparing job offers
  • Employee onboarding
  • Background checks
  • Setting up new employees in the system
  • Other administrative tasks

The number of hours needed to hire a new employee can add up quickly. Hundreds of total hours can be needed to replace an employee. Some overlooked costs of employee turnover need to be considered. 

Overlooked Costs of Employee Turnover

People often overlook just how much it costs to replace an employee who is terminated or leaves the organization. In addition to the hard and soft costs, your company could also be faced with other losses. They include:

  • Expertise
  • Industry connections and relationships
  • Productivity and employee engagement
  • Morale and company culture

These potential costs should not be overlooked. Whenever there is a change, especially in personal, it can have a far-reaching impact on the company. As you go up the ladder, the impact will be even more far-reaching and impactful. 

What Is The Formula For Calculating The Cost Of Employee Turnover?

So, is there a formula to calculate employee turnover? There are many ways you could crunch the numbers to try to determine an estimated cost. Here’s a general formula you can follow from to estimate the hard costs associated with turnover:

Recruitment costs + Supplemental pay + Temporary Worker Fees – Exiting Employee Pay = Hard costs of turnover

  • Supplemental pay: Overtime paid to retained employees because of the employee’s departure
  • Temporary worker fees: Costs to hire temporary workers, independent contractors, or consultants
  • Recruitment costs: Agency fees, advertising costs, background check vendor costs, etc.
  • Expiring employee pay: The departed employee’s rate of pay (including fringe benefits and tax costs covered by the employer) for the period the position was vacant.

A Final Word On The ACTUAL Cost Of Employee Turnover

There is no perfect way to determine how much employee turnover will cost you. But, one thing is for sure, it could cost you significantly, especially if turnover is a common occurrence in your organization. 


Get More Insights About Employee Turnover

Watch: 4 Crucial Ways to Reduce Employee Turnover

10 Direct and Indirect Costs of Employee Turnover

3 Insights for Preventing Employee Turnover This Quarter

Sabrina Galli

Sabrina is a seasoned professional with nearly 7 years of experience in Executive Search, specializing in intermediate to senior-level placements across a diverse range of sectors. With over 20 years of tenure as a business professional, 15 years working at Fortune 500 companies, and almost 7 additional years dedicated to headhunting, Sabrina possesses a comprehensive understanding of client requirements and a proven track record of delivering exceptional results.

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