The vacancy factor built from attrition and time to fill, then netted for the agency cover and recruiter fees that quietly spend it.
A payroll vacancy factor is annual attrition multiplied by the average number of days a post stays empty, divided by 365. For an illustrative department of 120 positions with 12 per cent attrition and 75 days to fill, the factor is 2.47 per cent, a gross saving of €251,507 on a €10.20 million budget. Net of agency cover and recruiter fees, the saving that actually reaches the P&L is €22,803, or 0.22 per cent.
Worked in full in Financial Planning and Analysis by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
A budget built position by position assumes every seat is paid every day. It never is: people leave, and their posts stay empty while the replacement is found, interviewed and works out a notice period elsewhere. Budgeting full establishment therefore produces a favourable payroll variance every month, which teaches managers that the payroll line has slack. The vacancy factor takes that slack out at the start. The question is how big it should be, and the answer is usually smaller than the round number finance teams reach for.
The department is fictional. The loaded cost is base salary plus 25 per cent for employer taxes, pension and benefits, the build described in how to calculate the fully loaded cost of an employee.
| Input | Value |
|---|---|
| Established positions (FTE) | 120 |
| Average base salary, € | 68,000 |
| On-costs | 25% |
| Loaded cost per FTE, € | 85,000 |
| Voluntary attrition, annual | 12% |
| Days a post stays empty per leaver | 75 |
| Share of vacant days covered by agency staff | 40% |
| Agency cost relative to loaded cost | 1.30× |
| Backfills hired through a recruiter / fee on base | 50% / 20% |
Full-establishment budget = 120 × €85,000 = €10,200,000
Leavers = 120 × 12% = 14.4 a year
Vacant days = 14.4 × 75 = 1,080, which is 1,080 / 365 = 2.96 FTE-years
Vacancy factor = attrition × days to fill / 365 = 12% × 75 / 365 = 2.47%
Gross saving = 2.96 × €85,000 = €251,507
Agency cover = €251,507 × 40% × 1.30 = €130,784
Recruiter fees = 14.4 × 50% × 20% × €68,000 = 7.2 hires at €13,600 = €97,920
Excel, with attrition in B1 and days in B2: =B1*B2/365; apply it as =Budget*(1-Factor) only to the positions it fits.
| Measure | Saving, € | Factor |
|---|---|---|
| Gross, salary not paid | 251,507 | 2.47% |
| Net of agency cover (payroll and temporary staff line) | 120,723 | 1.18% |
| Net of cover and recruiter fees (all-in) | 22,803 | 0.22% |
The gross figure is what most budgets book: the payroll line drops to €9,948,493. But 40 per cent of those empty days are not empty at all; agency staff fill them at 30 per cent above the employee's cost, which spends €130,784 of the saving on the temporary staff line. The backfills then cost €97,920 in recruiter fees, usually in the HR budget. Taken together the department saves €22,803. If the gross factor is booked in payroll and the cover and fees are budgeted nowhere, the company has a €228,704 hole it will discover as overspends in two other lines while payroll reports favourable.
Book the factor where it lands. If agency cover sits in a separate line, budget it there at the same time, from the same vacant-day count; the two lines then net correctly in the variance report instead of telling opposite stories.
| Attrition | 45 days | Net | 75 days | Net | 105 days | Net |
|---|---|---|---|---|---|---|
| 8% | 0.99% | −16,991 | 1.64% | 15,202 | 2.30% | 47,395 |
| 12% | 1.48% | −25,486 | 2.47% | 22,803 | 3.45% | 71,093 |
| 16% | 1.97% | −33,981 | 3.29% | 30,404 | 4.60% | 94,790 |
| 20% | 2.47% | −42,477 | 4.11% | 38,005 | 5.75% | 118,488 |
The factor scales with both drivers, from 0.99 to 5.75 per cent across this grid, so a flat company-wide percentage will be wrong for most departments. The net column is the uncomfortable one. With fast hiring, 45 days, more attrition makes the department poorer, not richer: each leaver brings a recruiter fee larger than the salary saved while the post is briefly empty. Higher attrition only looks like a payroll saving.
| Vacant days covered | Net of cover | Net all-in | All-in factor |
|---|---|---|---|
| 0% | 251,507 | 153,587 | 1.51% |
| 20% | 186,115 | 88,195 | 0.86% |
| 40% | 120,723 | 22,803 | 0.22% |
| 60% | 55,332 | −42,588 | −0.42% |
| 80% | −10,060 | −107,980 | −1.06% |
At a 1.30 premium, a post covered for more than 76.9 per cent of its vacant days costs more empty than filled. That is the practical rule for segmenting: apply the factor to roles that genuinely sit empty (project, back-office, specialist roles), and apply none to roles that are always covered.
Build the factor from attrition and days to fill, 2.47 per cent here, then net it for cover and fees before deciding where it goes: on this department it is worth 0.22 per cent all-in. The book's own budget comparisons, phasing and variance sheets are in the free workbook for this case.
It depends entirely on attrition and time to fill, which is why it should be built rather than borrowed. At 8 per cent attrition and 45 days it is 0.99 per cent; at 20 per cent and 105 days it is 5.75 per cent. A blanket 3 or 5 per cent applied to a stable team with quick hiring overstates the saving several times over.
No. Roles that must be covered from the first day, such as shift-based or front-line posts, save little or nothing when empty because agency staff fill them at a premium. At 1.30 times the loaded cost, a role covered for more than 76.9 per cent of its vacant days costs more empty than filled, so the factor should exclude it.
No. Mid-year hire phasing budgets new positions from their expected start date; the vacancy factor reduces existing positions for the gaps left by leavers. Applying both to the same new role double counts: the role is already partly empty in the phasing, and the factor takes a second slice from it.
This article is one calculation from Financial Planning and Analysis. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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