The High Cost of Employee Turnover and How to Retain Your Top Talent


Did you know that it can cost up to twice an employee’s salary to replace them? That’s a lot of money down the drain that could be better spent on investing in your business.

In this blog post, we will discuss the financial impact of employee turnover, why employees leave, and how to improve your employee retention rate. Keep reading for valuable tips that will help reduce your employee turnover rate and save your business money.

What exactly is employee turnover?

Employee turnover, otherwise known as attrition, is the percentage of staff members who leave your company within a certain time period. For example, if you have 100 staff members and 10 of them leave within one year, your annual turnover rate would be 10%.

In general, the formula to calculate turnover rate for any given period is:

Employee Turnover Rate (ETR) = (number of employees who leave / average number of employees) × 100

where avg. is the mean number of staff members during that time period including those who left.

The year-to-date (YTD) employee turnover rate is the sum of the ETRs for each month or quarter, say, that has passed so far in the current calendar year. For instance, assuming it is now March and the ETRs in January and February were 1% and 2%, respectively, to calculate employee turnover rate YTD would give 1% + 2% = 3%.

Average employee turnover rate

What constitutes a healthy ETR depends on your industry, company size, and location, among other things. For example, the hospitality industry has a notoriously high employee turnover rate (up to 70% according to some estimates), while the healthcare industry has a relatively low employee turnover rate (around 13%).

In general terms, a recent study by the Society for Human Resource Management (SHRM) found that the median for all industries in the United States was 18.3% in 2018, or about 1.5% monthly employee turnover rate. This means that, on average, around 1 in 5 employees in the US left their jobs last year.

Types of employee turnover

Members of staff leaving can be classified as both voluntary employee turnover or involuntary employee turnover – by staff members’ own accord or not, and desirable or undesirable – wanted by the employer or not.

  • Voluntary turnover – when an employee chooses to leave of their own accord (for example, to take another job or go into retirement).
  • Involuntary turnover – when an employee is terminated, let go, or otherwise forced to leave (e.g., death, disability, poor employee mental health, or being fired).
  • Desirable turnover – when an employee’s departure is, at least potentially, a net positive for the company (for example, an employee who is not meeting performance expectations).
  • Undesirable turnover – when a valued employee leaves and it negatively impacts the company (e.g., a member of staff is no longer able to perform their duties at work).

The costs of employee turnover

There are both direct and indirect costs associated with employee turnover. The former are those that are easily quantifiable, such as the cost of the hiring process and training new employees. The latter are more difficult to measure, but can be just as impactful.

The direct costs of employee turnover

The most obvious cost of employee turnover is the financial investment required to recruit and train new employees. Depending on the position and the company, it can cost anywhere from a few hundred to several thousand dollars to replace just one worker.

In addition, there is the opportunity cost of lost productivity. It can take weeks or even months for a new employee to get up to speed and become fully productive. In the meantime, your company will be losing out on valuable output.

Finally is the cost of lost institutional knowledge, which is all the valuable insights that an employee with years of experience takes with them when they leave. This can be a real blow to a company, especially if there is no one left who knows how to perform certain tasks.

The indirect costs of employee turnover

As well as the more obvious costs, there are also some knock-on effects of employee turnover. These include decreased morale and increased stress levels for remaining employees who may have to pick up the slack, which can lead to lower productivity and more mistakes.

There is also the risk that customers will be impacted, either through decreased quality of service or longer wait times. This can ultimately harm your company’s reputation in terms of a loss of brand value from a client’s perspective, ultimately making it more difficult to gain new customers.

Lastly is the intangible cost of damaged corporate culture, In extreme cases even leading to a toxic work environment. When long-time employees leave and take with them part of your organization’s history, this can have a negative impact on the company identity and make it more difficult to attract top talent.

The reasons for employee turnover

While employee turnover is not ideal, it’s often unavoidable and not necessarily a bad thing. In fact, some turnover can be healthy for a company as it allows new blood and fresh perspectives to come in.

Reasons for voluntary turnover

There are a number of reasons why employees may choose to leave their jobs, including:

  • Compensation – if employees feel that they are not being paid fairly or receiving sufficient benefits, they may look for other opportunities.
  • Career advancement opportunities – a lack of opportunity to move up in an organization can lead to stagnation and a feeling of being stuck in a rut.
  • Work/life balance – an increasing number of employees are looking for jobs that allow for a good combination of social or family and professional life.
  • In-office work only – some employees prefer working remotely or from home, especially in the wake of the Covid-19 pandemic, so they may look for an organization that allows this possibility if their current employer does not.
  • Company culture – a poor atmosphere within the workplace can be a major turn-off for employees.
  • Unsatisfactory work – when a member of staff is not engaged in their daily tasks or feels that their job is monotonous, they may decide to move on.
  • Poor fit – sometimes an employee may simply not be a good match for a company, in which case it is best for both parties if they go separate ways.
  • Bad working relationships – an employee not getting along with their boss (e.g., poor management) or colleagues can lead to a very hostile work environment.
  • Employee onboarding – if the process of integrating new members of staff is underpar, it can leave them feeling unprepared and uncertain about their future at the company. To test this, compare your new hire turnover rate with that of your tenured employees.

Reasons for involuntary turnover

In some cases, an employee may be forced to leave their job against their will. The most common reasons for this are:

  • Poor performance – an employee who is not meeting the standards set by the company might be asked to leave.
  • Attendance issues – excessive absenteeism can be a strain on resources and eventually lead to dismissal.
  • Misconduct – if an employee is found to be engaging in activities that are harmful to the company or their colleagues, they may be let go.
  • Restructuring – when a company is reorganizing its operations or downsizing, it’s likely that some members of staff will be made redundant.
  • Economic conditions – in tough economic times, companies may be forced to lay off staff in order to stay afloat.

How to reduce employee turnover rates

There are a number of steps that companies can take in order to retain their top talent, which will be discussed in detail below.

Offer competitive compensation

One of the most important things that companies can do to reduce employee turnover is to offer relatively high salaries and benefits. Employees who feel that they are being fairly compensated for the work they put in are much less likely to look for other opportunities.

Stay up-to-date on salary trends in your industry so that you can offer salaries that meet or exceed those offered by other businesses.  You may also want to consider providing benefits such as health insurance, retirement plans, long term incentive plans, and child care assistance.

Provide career advancement opportunities

One of the best ways to keep employees from leaving is giving them the chance to move up within the company. Staff who feel stuck in a dead-end job are more likely to start looking for new opportunities elsewhere, whereas providing a path to climb the career ladder keeps them motivated and increases employee engagement.

This could involve offering training and development programs or creating new positions that allow employees to use their skills and knowledge in a more challenging role.

Encourage a positive work/life balance

In today’s fast-paced world, it’s more crucial than ever for people to maintain a good equilibrium between their social or family and professional lives. Employees who feel like they are constantly working long hours with no time for themselves or their loved ones are more likely to start looking for jobs that offer a better work/life balance.

There are a number of ways to encourage a positive work/life balance within your company. This could involve allowing flexible working arrangements, encouraging employees to take regular breaks, and providing support for employees who have young children or elderly parents.

Allow remote work arrangements

Providing employees the opportunity to work from home on a regular basis, if not even full time, gives them the flexibility they need to better manage their personal and professional responsibilities. This can be especially beneficial for employees who have long commutes or who need to take care of young children or elderly parents.

When employees are given permission to work remotely, this also instills a sense of trust and responsibility, both of which are important for employee retention. Studies have also shown that employees who are given the option to work remotely are happier, more productive, and less likely to leave their jobs.

If you’re not able to allow all of your employees to work remotely at the same time or not on a full-time basis, consider offering this option case-by-case or for a few days per week. If you can, you may even decide to close down your office entirely and have all members of staff working remotely.

Create a positive workplace culture

The work environment that you create plays a big role in employee morale, so make your place of business one that people actually enjoy coming into every day. A positive workplace culture can be achieved by ensuring that there is open communication, mutual respect, and a sense of camaraderie among employees.

You could also organize team-building activities, social events, and other morale-boosting activities. Further, consider creating employee resource groups, offering wellness programs, or even setting up a break room with food/drink facilities, games, and comfy seating for employees to relax and unwind during their downtime.

Make your employees feel appreciated

One of the main reasons why people leave their jobs is because they feel underappreciated. If your staff feel like their hard work is going unnoticed, it’s only a matter of time before they start looking for a job elsewhere.

Show your employees that you value their contributions, they’re valued members of the team, and you’re grateful for all the hard work they do by regularly expressing your appreciation. This could be in the form of verbal praise, handwritten thank-you notes, or even small gifts or bonuses.

Take on board feedback

If you want to know what your employees think about their jobs, the best way to find out is to simply ask them. Collecting feedback from staff members and letting them have a say in decision-making processes will make them feel like their opinions and input are valued, which is vital for maintaining positive relationships with employees.

Encourage staff to provide feedback by setting up regular one-on-one meetings, conducting surveys, or even holding focus groups. However, it’s crucial that you actually act upon the feedback you receive, as this will show your employees that you’re willing to listen and make changes based on their suggestions.


Employee turnover is a major problem for businesses, but there are things that companies can do to reduce it. Providing opportunities for career advancement, offering competitive salaries and benefits, and encouraging a positive work-life balance, among others, all help businesses keep their top talent from leaving.

Implementing these strategies will help improve employee retention and avoid the high costs associated with turnover, both in direct financial terms and other indirect ways such as reduced productivity. In the long run, investing in your employees and their job satisfaction will pay off for your business.

Measure employee turnover in your business today to find out if you need to improve, and if you need help with doing so then consider human resources management with Sloneek.