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The cost of employee turnover is staggering in 2023. We review the (often hidden) costs of employee turnover and provide tips to retain your valued team.
In the bustling landscape of today’s business world, retaining employees has become a critical mission for companies across hundreds of industries. The cost of employee turnover is not just a concern for HR departments; it's a substantial burden on the financial health and productivity of every organization.
Do you want proof?
The costs of replacing an individual worker can range from half to four times the employee’s annual salary.
That means, if you’re hiring for a job that pays $60,000, you could be spending upwards of $180,000 to fill that role.
Edie Goldberg, the founder of a California-based talent management and development company, says of those costs, “30 percent to 40 percent are hard costs, and the other 60 percent are soft costs.”
Soft costs of employee turnover include the time managers and high-level executives invest in supporting the HR-specific roles of the hiring process. When added to hard costs, the price of recruiting skyrockets.
"When all of these professionals are meeting with potential candidates, screening applications, scheduling a few rounds of interviews and making final decisions, it takes away time from accomplishing organizational goals/outcomes, which then certainly ties to ROI," says Ankit Shah, supervisor of talent development at Ohio’s Columbus State Community College.
Consider this: a 100-person company that dishes out an average salary of $50,000 could have turnover costs of over $2 million per year.
Equally astounding, replacing C-level executive positions can cost up to 213% of their yearly salary.
This all leads to a loss of productivity, which costs US businesses a staggering $1.8 trillion every year.
While these turnover statistics highlight obvious costs, there are also hidden costs, things that go beyond what it takes to train, hire, and retain new employees.
Along with highlighting the average cost of employee turnover in 2023, we’re going on a deep dive into financials, stats, and most importantly: effective employee retention strategies so companies can do their best to avoid these costs altogether.
When it comes to employee turnover, the costs that meet the eye are just the tip of the iceberg. Beneath the surface lies a multitude of hidden expenses that can be astronomical and significantly impact a company's bottom line.
Most of the employee turnover costs are obvious and often easily reflect a company’s balance sheet. These include everything from training a replacement, recruiting, interviewing, pre-hiring testing, orientation, and administrative processing.
But the less-obvious and sometimes hidden costs can really hurt:
Even when a new hire is made, it will take time to get them up to speed. There’s also the possibility of work simply falling through the cracks. Production delays and lost sales can lead to unhappy customers. “Dealing with trainees can be challenging,” says Toronto-based HR consultant Tom Armour. “If you have a lot of unwanted turnover, customers can get annoyed or begin to lose interest in your business.”
Furthermore, employee departures can damage team morale and organizational culture, making it harder to attract new talent and retain existing employees. These intangible yet critical factors contribute significantly to the hidden costs of turnover.
Reducing employee turnover is not just a task relegated to the Human Resources department; it should be a company-wide priority.
This change in perspective is crucial as high turnover rates impact every aspect of an organization. From the C-suite executives to team leaders and individual contributors, everyone plays a part in either exacerbating or mitigating the turnover challenge.
When turnover rates remain high, it disrupts team dynamics, affects morale, and hampers productivity. These effects can ripple throughout the organization, leading to decreased employee engagement, tarnished company culture, and even a damaged reputation in the job market. In a competitive business landscape where attracting and retaining top talent is paramount, these consequences should be concerning for every member of the organization.
In essence, addressing employee turnover is not solely a responsibility of HR managers; it is an imperative for company leaders and executives. Recognizing turnover reduction as a shared goal empowers all employees to contribute to a healthier, more stable, and ultimately more prosperous work environment.
There are three pivotal aspects that highlight the significance of managing and reducing employee turnover. These aspects shed light on why turnover rates should concern decision-makers and stakeholders across the organization.
One of the foremost reasons to prioritize employee turnover reduction is the substantial financial impact it has on an organization.
As mentioned earlier, the cost of replacing an employee can be exceptionally high, often exceeding their annual salary. But it doesn't stop there; the financial repercussions extend to recruitment costs, onboarding expenses, and lost productivity during the transition.
All of the aforementioned financial strains caused by employee turnover may divert resources from strategic initiatives, hindering an organization's ability to innovate and compete effectively in the market.
Decision-makers should recognize that every dollar spent on turnover-related costs could be channelled into investments that drive sustainable growth and success.
Employee turnover also exerts a palpable influence on the engagement and morale of the remaining workforce. When employees witness their colleagues leaving the organization frequently, it can trigger a sense of uncertainty and disengagement. They may question the stability of their own positions and the future of the company. The costs of employee disengagement can be high.
High turnover rates can erode the sense of belonging and camaraderie within teams. When individuals are constantly departing, it disrupts team dynamics and relationships, making it challenging for employees to forge strong connections with their colleagues. This sense of isolation can lead to decreased job satisfaction and motivation.
Furthermore, turnover can create additional workloads for those who remain, as they may need to compensate for the departed employee's absence. This increased workload, coupled with the emotional toll of seeing colleagues leave, can lead to burnout and reduced overall productivity. Decision-makers should understand that addressing turnover is not just about retaining talent; it's also about fostering a positive work environment that keeps existing employees engaged and motivated.
In an era where employer branding plays a pivotal role in talent acquisition, employee turnover can significantly impact an organization's reputation in the job market. High turnover rates can be perceived as a red flag by potential candidates, dissuading them from applying for roles within the company. This tarnished reputation can make it challenging to attract top talent, especially in competitive industries.
An organization known for frequent turnover may struggle to retain its existing employees. Talented individuals may seek opportunities elsewhere, believing that the grass is greener at companies with lower turnover rates and a more stable work environment.
Decision-makers should be acutely aware that the organization's reputation extends beyond its products or services—it also encompasses its treatment of employees. Addressing employee turnover and creating a workplace where talent thrives can enhance the company's employer brand, making it a more attractive destination for skilled professionals.
Let’s delve deeper into the true costs associated with employee turnover — with numbers.
A combination of direct expenses and hidden costs can significantly impact an organization’s financial health and overall stability.
We said it off the top, the numbers are staggering.
A milestone study by Josh Bersin, a Global Industry Analyst and HR researcher, says the total cost of losing an employee can range from tens of thousands of dollars— per worker.
Bersin says HR managers, leaders, and execs should consider the following “real total cost” of losing an employee:
According to a study by the Society for Human Resource Management (SHRM), the average cost per hire in the United States is approximately $4,000. This figure includes costs associated with job postings, background checks, assessments, and recruitment agency fees.
It's essential to recognize that recruitment advertising costs extend beyond monetary investments. They also consume valuable time and resources, both for HR personnel and hiring managers. Therefore, the true financial impact of advertising and talent-sourcing expenses is often underestimated.
When an employee decides to leave the organization, their departure can disrupt ongoing projects and initiatives, leading to missed deadlines and project delays.
This is especially true for roles that require specialized skills or in-depth knowledge of the company's operations.
According to a survey conducted by Management consulting firm Robert Half, 39% of HR managers cited missed deadlines as one of the most significant negative impacts of employee turnover. Additionally, a report by the Work Institute found that turnover-related absences and lost productivity accounted for 58% of the total cost of turnover.
Project delays can have a domino effect on an organization. They may require additional resources to get back on track, potentially leading to overtime pay or the need to hire temporary workers. These true costs associated with missed deadlines can escalate quickly, affecting both short-term and long-term organizational goals.
One often overlooked aspect of employee turnover is its potential to trigger an unwanted chain reaction.
When employees observe their peers leaving the organization, it can create a sense of instability and job insecurity. This heightened uncertainty can lead to increased stress and anxiety among the remaining workforce.
A survey by Gallup found that 51% of employees who witnessed a colleague leave the organization in the past six months were actively searching for new job opportunities themselves. This "contagion effect" can result in subsequent turnovers, compounding the organization's turnover costs.
Moreover, the departure of experienced employees can create knowledge gaps within teams, making it challenging for the remaining staff to fulfill their roles effectively. This, in turn, can contribute to reduced job satisfaction and higher turnover rates among those who remain.
When a new employee joins an organization, they require time and resources to become fully productive and integrated into their role.
A study by the Center for American Progress estimates that the cost of training a new employee can range from 16% to 20% of their annual salary. For specialized positions or roles requiring specific skills, this cost can be even higher.
Furthermore, the disruption caused by the departure of an experienced employee can lead to increased training needs for the entire team. Colleagues may need to invest time in helping the new hire get up to speed, diverting their attention from their own tasks and projects.
The true costs of employee turnover encompass not only the visible financial outlays associated with recruitment and onboarding but also the less tangible expenses related to missed deadlines, increased likelihood of future turnovers, and training requirements.
Because numbers can vary per industry, you might be thinking about how to calculate employee turnover rates.
Understanding your organization's turnover rate is crucial for effective retention strategies. However, there is a formula to be able to calculate employee turnover rates.
Luckily, you don’t need to be a math wiz to determine your employee turnover average.
We’ve got a handy formula:
To calculate the monthly employee turnover rate, all you need is three numbers:
Calculate the average (average) number of employees by adding your beginning (B) and ending workforce (E) and dividing by two.
Divide the number of employees who left (L) by your average number (average) of employees and multiply by 100 to get your final turnover percentage.
(Example: if you lost 10 employees in a month and your average workforce is 100, your turnover rate is 10%.)
Employee recognition plays a pivotal role in retaining talent within any company.
When employees feel their contributions are valued and acknowledged, they are more likely to stay engaged and committed. However, the absence of employee recognition can lead to dissatisfaction, disengagement, and inevitably, turnover.
Solution: Implementing an employee recognition program can counteract this factor. Recognition programs, like what we offer at Applauz, provide a structured platform for acknowledging and rewarding employee efforts, fostering a culture of appreciation and engagement.
A good employee recognition platform allows for structured recognition (acknowledgment of work anniversaries or birthdays) or unstructured recognition (kudos on a job well done that can come from managers or peers). This ability to provide and receive support from colleagues is a critical component of any healthy work environment, remote or otherwise.
Our software also includes pulse survey functionality that allows managers and HR leaders to take the temperature of the organization and spot emerging issues--ever more important for hybrid and remote teams when informal hallway conversations may not be possible.
Company culture is the collective personality of an organization.
A toxic or unsupportive culture can drive employees away. When team members don't feel aligned with the values and mission of their workplace, they are more likely to seek employment elsewhere.
Solution: Cultivating a positive company culture is essential. This involves defining clear values, promoting open communication, and ensuring that employees feel a sense of belonging. Recognizing and celebrating cultural alignment can help retain employees who resonate with the organization's ethos.
Employees who perceive limited opportunities for advancement or skill development within their current role are more inclined to explore other job prospects. A lack of career progression can lead to frustration and disengagement.
Solution: Providing avenues for professional growth is key. Offering training, mentorship programs, and clear career paths can motivate employees to stay and invest in their development within the organization.
Supervisors and managers play a critical role in shaping employee experiences. Poor leadership, micromanagement, or a lack of support from superiors can contribute to high turnover rates.
Solution: Investing in leadership training and fostering effective management practices can mitigate this factor. Strong leaders who prioritize employee development and well-being are more likely to retain their teams.
Employees often seek competitive compensation and attractive benefits packages. When they perceive that their remuneration doesn't match market standards or their contributions, they may explore other opportunities.
Solution: Conduct regular compensation benchmarking to ensure that salaries and benefits align with industry standards. Communicate the value of benefits and bonuses clearly to employees.
Implementing an employee recognition program, such as Applauz, provides a structured and effective way to acknowledge and reward employees for their hard work and dedication. By regularly recognizing employees for their achievements, companies can create a positive workplace culture that fosters loyalty and reduces turnover.
The true cost of employee turnover is far more than what meets the eye. While the immediate expenses are substantial, the hidden costs can be even more detrimental. High employee turnover negatively impacts morale, productivity, and your ability to attract top talent.
Reducing employee turnover should be a priority for businesses in 2023.
By addressing factors like employee recognition, company culture, and growth opportunities, companies can retain valuable talent and improve their bottom line.
Our employee recognition software provides a powerful tool for enhancing employee engagement, reducing turnover, and fostering a culture of appreciation.
Investing in retention strategies is not just an expense; it's a smart investment in the future of your organization.
Take it from us, communicate so employees know they are valued, show employees why their work is important, and create a collaborative working environment. If you’re wisely prioritizing employee recognition, visit our guide to direct you toward everything you need to know about creating a successful Employee Recognition Program.
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