Employee turnover is usually expressed as a ratio: the number of employees who have left divided by the total number of employees. Employee turnover rates are usually calculated for a company on a yearly basis, so it would be the number of employees who left during the entire year divided by the total number of employees at the beginning of the year.
If a company has 100 employees and 2 of them leave, the turnover rate is 2 divided by 100, or 2%. That’s a low turnover rate. If a company of five loses two employees, that’s a 40% turnover rate (2/5), which is a high turnover rate. You can also calculate the turnover rate for any smaller unit of the company in the same manner. If 2 accountants left a staff of 8, the accounting turnover rate would be 25%. If 3 salespeople left out of a team of 15 the sales turnover rate would be 20%. And if those two departments were the entire company, the company turnover rate would be 5 who left divided by 23 total employees, which is roughly 22%.
Employee turnover cost is usually defined as the cost to hire and train a replacement employee. If several employees have left, there may be some small savings in certain categories from economies of scale, but you have costs to get the new employee trained. Even when you hire highly qualified, experienced employees, there are always training costs. If nothing else, they have to be trained in the way your company does things, and these training costs continue to add up until the employee is trained to the same level of productivity of the former employee they replaced.
Training costs include the following:
Time for people to train them: This would include training them in the company’s practices as well as the duties of their individual job.
Training materials: These will have to be prepared or, if they exist, reviewed and updated.
Benefit enrollment: HR has to explain the benefits to the new employees and give them the enrollment forms to fill out or help them fill them out.
Accounting: You will need to get them onto the payroll.
IT: You will need to issue computer equipment and get them into the email system, set up their username and password, etc.
Opportunity Costs: These are the costs of business lost because you didn’t have the people to do all the work while you were shorthanded.
When reviewing your turnover rate and costs, remember to include these items for more accurate expenses. This will help you see the cost of hiring and the value of your existing employees.
Are there other important costs that you calculate into your employee turnover rate? If so, share with us in the comments below, or let us know if you have any questions.