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The 5 Primary Costs of Employee Turnover and How to Manage Them


Employee turnover is typical for most businesses. However, it can be problematic if left unchecked. A high turnover rate deals damage from multiple angles, from the expense of recruiting and training new hires to the loss of institutional knowledge and a tarnished reputation. Gallup estimates that U.S. businesses lose an astounding $1 trillion annually due to voluntary turnover.


Fortunately, you can mitigate the impact of high turnover with a well-calculated response. A good starting point is understanding the primary cost factors of employee turnover. Only then can you develop a proper action plan.


In this article, we discuss 5 primary costs of employee turnover:


So, let’s dive in and reduce rising employee turnover rates.


Turnover results in recruitment costs

Most of the time, when an employee leaves, you must spend money to replace them. According to a study by The Society for Human Resource Management (SHRM), the average cost of replacing an employee is 6 to 9 months of their salary. This cost covers:


You may also have to pay a signing bonus or other incentives to attract top talent.




Recruitment costs are often unavoidable and can wreak havoc on your budget if your employee turnover is high. Nevertheless, you can keep them at bay with these proactive measures:


Training and onboarding cost

When you hire a new employee, you must provide training to get them up to speed with your company culture and how things are done. Depending on the position, this process can take weeks or even months, and onboarding costs can quickly spiral out of control if you have a high amount of turnover.


A report by the SHRM places the average cost of onboarding a new hire at $4,100 per individual. This total includes costs like orientation, training, and paperwork processing. Additionally, new employees usually take time to adjust to their new position and reach peak productivity. According to a survey by the Harvard Business School, typical mid-level managers take 6 months to achieve their breakeven point. While not easily quantifiable, the costs associated with this adjustment period can be significant.


Onboarding is an unavoidable outcome of employee turnover, but you can make the costs easier on your bottom line. Here are some suggestions for keeping onboarding expenses at a minimum.


The cost of reduced employee morale

Employees often form close bonds with their coworkers and develop a sense of camaraderie. Therefore, when one of them leaves, the remaining employees tend to feel disengaged or demotivated.


Reduced morale can tremendously impact productivity and, as a result, your bottom line. A Gallup study found that disengaged employees cost U.S. companies $450 to $550 billion annually. Some staff members even start questioning their reasons for staying, resulting in a chain reaction of additional resignations.


Here are some steps to protect your team’s morale when an employee leaves.


 Minimizing the impact of turnover on employee morale requires a delicate balance of communication and action.


The cost of being short-staffed

Losing an employee can have a ripple effect that reaches far beyond the individual. As a result, your employees can feel overwhelmed and stressed.


Besides putting strain on your staff, being short-staffed can also hurt your company’s reputation. Customers can get frustrated if they have to wait longer for service or if the quality of the product or service suffers.


Reducing the impact of short-staffing can be challenging, especially when an employee leaves unexpectedly. Nonetheless, you can get ahead of this cost with some calculated steps.


 When one person leaves, the remaining staff must pick up the slack while you look for a replacement and get them up to pace.


The cost of loss of institutional knowledge and experience

When longtime or highly skilled employees leave, they go with a wealth of knowledge and experience. Unfortunately, this gap can be too big for new or remaining employees to fill, and it can take months or even years to rebuild the same level of expertise.


The loss of institutional knowledge is often one of the most challenging turnover costs to manage. The best way to avoid this cost is to foster a culture of learning and expertise sharing.




Below are some helpful starting points when developing this culture.


 Besides recruitment and onboarding costs, a high turnover rate can also cause diminished morale, employee burnout, and loss of valuable institutional knowledge and expertise.


Manage employee turnover costs by maximizing retention

Employee turnover can be costly and disruptive for any organization. Understanding employee turnover costs can help you take proper steps toward protecting your business from severe exposure. However, remember that maximizing employee retention is the most effective way to arrest turnover costs.


Encourage your employees to stick around for the long haul by:


That way, you can maintain a team that is committed and invested in your company’s success.

Posted Date: 2023-04-03

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