Harvard ManageMentor — BUSINESS CASE DEVELOPMENT TOOLS

Worksheet for Calculating the Cost of Replacing a Specific Employee

Use this form to calculate the cost of employee turnover in one position or salary range per year. Calculate
costs for replacement employees only. Do not calculate costs for employees hired to fill new positions.

Position: Salary level:

Hiring Costs
Direct costs to hire one new employee
Advertising
Average fee to employment agencies, placement firm
Sign-on bonus
Referral bonuses to other employees
Travel and expenses (include your expenses and money you reimburse to prospective candidate)
Other direct costs
Total Direct Costs to Hire
Indirect costs to hire one new employee
Estimate the costs incurred by having all current employees perform the following activities related to a new hire:
Interviewing (costs of current employees at all levels of interviewing, from initial phone call through final
interviews)
Checking references
Lost revenue (include costs of time spent away from actual jobs)
Miscellaneous indirect costs (phone, copy, fax)
Total Indirect Costs to Hire
Training Costs
Direct costs to train one new employee
Time spent by person/people directly responsible for training new hire to do job. Cost per hour times
number of hours.
Cost per participant of general training programs, training materials, seminars for new hires
Travel and expenses per participant for above
Other direct costs
Total Direct Costs to Train
Indirect costs to train one new employee
Estimate the time spent by all current employees who are involved in training a new candidate:
General training in company technology and procedures, processes, etc.
On-the-job training costs before employee becomes fully productive
Total Indirect Costs to Train
Lost Productivity Costs (note: this section applies to any job that has sales or productivity measures that can
be converted to dollar amounts)
Indirect costs incurred until employee is performing at expected level
Lost revenues for the time the position is vacant (multiply the revenues a typical employee generates per
month by the number of the months the position will be vacant)
Lost revenue during the time the employee is getting up to speed (calculate the difference between the
revenues a new employee generates and what an existing employee generates during the training and
transition period)
Total Lost Productivity Costs
TOTAL COST OF REPLACING A SINGLE EMPLOYEE
Annual Cost of Employee Turnover
To calculate the annual cost of employee turnover, multiply the cost of replacing one employee
times the number of replacements each year.
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