Cost of Employee Turnover: How to Calculate It
The cost of employee turnover is the total amount a business spends when a worker leaves and has to be replaced, including final pay, recruitment, onboarding and lost output. Under the Fair Work Act, final pay must include unused annual leave, so every exit carries a payroll cost as well as a hiring cost.
This guide explains what makes up that cost, shows examples from real sites and lists the figures you can check without guessing.
How the cost of employee turnover works
Turnover costs fall into a few groups. Work through each one for your own business, using your payroll and recruitment records rather than industry averages.
- Separation costs include final pay, unused annual leave paid out when employment ends, any notice or pay in lieu, and the admin time to close the file.
- Recruitment costs include advertising, agency fees, interviewing time, reference checks and a police check where the role needs one.
- Onboarding costs include the induction, uniforms, tools, system access, a white card for construction roles and training before the person is productive.
- Productivity costs include the gap while the seat is empty, overtime paid to cover it and the slower output of a new starter.
- Team costs include lower morale, extra supervision, and the risk that other staff follow the person out the door.
- Compliance costs include updating payroll, reporting through Single Touch Payroll and keeping time and wage records for 7 years.
Examples of employee turnover costs
- A construction labourer quits mid-project, so the site pays overtime to cover the gap, books a replacement and repeats the site induction.
- A warehouse picker leaves during a peak week, and orders slip while a casual is found and trained on the scanners.
- A cleaner on a commercial contract resigns, and the contract manager covers shifts until a replacement is rostered and cleared for site access.
- An office administrator leaves after the first few months, and the team absorbs the work while the role is advertised again.
- A plant operator moves to a competitor, and the project waits for a replacement with the right ticket.
Cost of employee turnover: rules and key numbers
Use the table to price the parts of a departure that are set by law. Dollar costs that depend on your business are not shown, so use your own records or get quotes.
| Cost item | Rule or figure | How to estimate |
|---|---|---|
| Unused annual leave | Paid out when employment ends | Leave balance multiplied by the employee's rate |
| Notice period | 1 to 4 weeks depending on service, with an extra week for some employees over 45 | Weeks of notice or pay in lieu |
| Police check | $58.60 for a name and date of birth check in 2026-27 | Number of candidates checked |
| White card duplicate | $43 in 2026-27 | Only if the new starter needs a replacement card |
| Super on final pay | 12% of ordinary time earnings for 2026-27 | Final ordinary earnings multiplied by 12% |
| Agency or advertising fees | Varies by provider and role | (indicative — get quotes) |
Employee mobility and turnover
Employee mobility is the movement of people into, out of and within a business. It includes resignations, dismissals, transfers, promotions and secondments, and only the people who leave count towards turnover.
- Track leavers, transfers and promotions separately so you can see which movements are costing money.
- Compare leavers over a year with your average headcount to get a turnover percentage you can track from year to year.
- Ask leavers why they are going, and record the answers in a consistent way you can review each quarter.
- Use workforce planning to forecast gaps before a departure leaves you short.
Related terms
- Probation period: an agreed early stage of employment used to assess fit before the role is confirmed.
- Interview questions: the lawful questions used to assess skills, experience and fit for the role.
- Employment contract template: a starting point that records pay, hours and duties, which should be reviewed by a lawyer.
- Workforce planning: matching the number and skills of staff to the work you expect.
Employee turnover FAQ
How do I calculate the cost of employee turnover?
Add separation, recruitment, onboarding and lost productivity costs for each leaver, then divide by the number of leavers to get an average. Use your own payroll and invoices. Where you cannot measure a cost, give a range marked as an estimate.
What is employee mobility?
Employee mobility is the movement of workers into, out of and within an organisation. It covers new hires, resignations, transfers and promotions. Turnover is the part where people leave, and tracking both shows whether movement is planned or unplanned.
Can I reduce turnover without paying more?
Often, yes. Clear inductions, accurate pay, fair rostering, safe sites and good supervision all help people stay. Check pay against the award, as underpayment pushes workers out. Pay isn't the only factor, so ask leavers and current staff what matters.
Managing employee turnover costs
This is general information, not legal, tax or financial advice, so check the Fair Work Ombudsman, the ATO or an employment lawyer for your situation. For the full hiring process, read our guide on how to hire employees.
If you need reliable staff while you rebuild a team, we supply screened and inducted workers across Sydney. Visit our host employer labour hire page to talk to us.