The Hidden Costs of Employee Turnover (and How to Retain Top Talent)

How much does employee turnover cost?

According to the Express Employment Professionals-Harris Poll, 33 percent of hiring managers who said they expected increased turnover anticipated it would cost them an average of $36,295 annually. More than 20 percent said they expected that number to climb to $100,000 or higher in the coming years.

While a variety of factors can impact the cost of turnover ― like the departing employee’s skill level, education and experience ― the total cost can be as high as 150 percent of an employee’s annual salary, the survey noted. When multiplied by hundreds or thousands of employees, these costs can rapidly skyrocket.

Employers should consider both direct and indirect costs related to employee turnover. Direct costs may include: 

• Job ad placements
• Recruiting agencies
• Temporary and contingent workers
• HR and manager salary allotment to screen and interview candidates
• Travel and moving expenses
• Signing bonuses
• New employee onboarding costs, including training and equipment 
• Technical setup

However, these direct costs linked to hiring new employees are only the tip of the iceberg. Indirect costs, while more difficult to quantify, can have an even larger effect on a business’s:

• Productivity loss during the time gap that a role remains open
• Hidden costs of new employee training, like time allocated for on-the-job instruction from more senior employees and mistake correction
• Slower than usual output from new employees unfamiliar with equipment and processes
• Brand reputation damage from unhappy former employees 
• Declining employee morale due to severing of relationships with colleagues
• Depletion of company knowledge from loss of long-time employees
• Possible further resignations from employees whose colleagues have left

Needless to say, these are negative impacts that any business owner would want to avoid. Decreasing employee turnover will decrease these costs naturally. However, before we dive into best practices to retain employees, it’s important to understand what causes employee turnover in the first place.

Causes of employee turnover

Globally, 51 percent of currently employed workers are watching for or actively seeking a new job. That staggering statistic was uncovered by a recent Gallup State of the Global Workplace report. Let’s take a look at some of the factors driving employee turnover.

Pay, benefits and perks

An estimated 16 percent of employees cited better pay and benefits elsewhere as a top reason for leaving their jobs, according to Gallup. In 2022, a widespread resurgence in jobs amid the global economy’s recovery from the COVID-19 pandemic meant that employees had a variety of open roles from which they could choose, including jobs with better pay and benefits.

While the “Great Resignation” has slowed somewhat, the labor market for employers remains tight, according to Gallup. According to the Harris Poll survey of hiring managers, 38 percent of the respondents who expected employee turnover to increase in the next year said it would likely be because employees could find better pay and benefits offered elsewhere. Around a quarter of the expected turnover would be driven by better perks offered elsewhere, such as summer Fridays and unlimited vacation days.

Employee well-being and work-life balance

Employees feeling overworked and unable to maintain a healthy work-life balance due to work demands is another key factor driving turnover. According to Gallup, 28 percent of employees who left their jobs recently cited reasons related to well-being and work-life balance, such as wanting more flexibility to work remotely at least some of the time, issues with their work schedule or physical working conditions or personal reasons like family or medical leave. According to the Harris Poll, 35 percent of employees who left their jobs said their demands at work had increased and 31 percent said they felt overworked.

Engagement and culture

An estimated 41 percent of employees who left their jobs reported issues related to engagement and culture, according to Gallup. These include a lack of advancement or development opportunities, a negative workplace culture, feeling their personal values were misaligned with the company’s values, issues with diversity, equity and inclusion and a lack of recognition for achievements.

Employee disengagement remains a major underlying cause of turnover. Gallup data indicates that 59 percent of employees are “quiet quitting” or not engaged at work, meaning they feel disconnected from their employer, they put in the minimum effort required and may feel stressed or burned out. About 18 percent are “loud quitting” or actively disengaged, meaning they are actively undercutting an organization’s goals over a feeling of broken trust.

Managers and leaders

You may have heard the saying, “People don’t leave jobs, they leave managers.” While this isn’t always the case, it’s certainly true at least some of the time. An estimated 12 percent of employees who quit their jobs recently cited issues with their direct supervisor or with upper management, according to Gallup. But managers can have a direct impact on how employees engage at work and experience a company’s culture, another major factor when people leave their jobs.

Of workers who cited leaving over culture and engagement issues, according to Gallup, many reported wanting managers to be more communicative, offer clearer goals and better guidance, respect them, ramp up employee appreciation and give everyone a fair chance to get promoted.

How to reduce employee turnover and retain top talent

Luckily, there are a few key strategies you can use to combat some of these underlying causes and cut down on employee turnover. While it’s always a good idea to survey your current and departing employees to determine what’s causing your turnover problem before addressing the issues, we’ve listed some of the top retention strategies below.

Offer competitive compensation and benefits

Workers who left their jobs because of concerns over pay and benefits told Gallup they didn’t feel their pay was on par with the level of work output or proportional to their qualifications. Offering competitive salaries and benefits is one of the best ways to attract and retain top talent. 

With lingering debt from the pandemic and increasing inflation, financial health is more important than ever to employees, according to the Society for Human Resource Management. With more open roles to choose from, workers are more able now than ever to switch jobs if they don’t feel they are being compensated properly. To avoid turnover due to compensation issues, prioritize benchmarking employee salaries against your competitors to ensure what you’re offering is on par with industry standards.

Increase employee engagement

Gallup data shows that engaged employees are less likely to leave their jobs. The State of the Global Workforce report found that 61 percent of employees who reported watching out for or actively seeking a new job were actively disengaged at work, compared to 43 percent of people who were engaged at work. 

You can encourage employee enthusiasm about your business goals by using values-based recognition tactics, creating opportunities for fun, offering coaching and mentoring, affording employees professional development opportunities and supporting your employees’ goals. Learn more about ideas for employee engagement.

Build trusting relationships

Building relationships with employees is an essential way to ramp up retention. If you maintain open and honest communication with your employees, Gallup notes they’re more likely to feel comfortable telling you about any issues that arise at work ― including any that might prompt them to look for another job. Then, you can work with them on solutions before they leave.

Having regular, structured conversations with your employees ― whether formal or informal ― is a great way to maintain a healthy relationship with them. Gallup recommends talking to your employees every week and having an in-depth “stay interview” with your employees each year to learn why they stay at the company and what could improve. 

Establish a healthy workplace culture

Having a strong company mission and values ― and following through on them at every level of your operation ― is a great way to establish a healthy workplace culture. Reflect on what your company’s mission and values mean to you and contribute to these goals alongside your employees in meaningful ways. For example, if one of your company’s goals is sustainability, can you spend a few hours together each month volunteering at a group that supports this goal in your community?

As a leader, you should embody your company’s mission and values and set the standard for your employees to contribute to these goals as well. You should clearly articulate these values, whether it’s by discussing them frequently at team meetings or by laying them out in an employee handbook. 

Use human resources (HR) tools to boost employee satisfaction

HR software tools are a great way to help organize and streamline employee experience and help retain top talent. For example, if you’re committed to building better employee relationships but don’t know where to start, a talent management solution can automate a schedule for performance review conversations and offer suggestions for how to structure the conversation. These tools can also prompt employers and employees to work together on setting goals and allow them to track progress together.

This is just one example of how HR tools can help retain talent. Other helpful features include professional development learning modules, recruiting and onboarding, payroll tools to ensure accurate and on-time payment, time and attendance solutions and reporting and analytics. We recommend checking out a top-tier HR and workforce management solution like UKG, which offers a wide variety of solutions so you can pick and choose the tools most suited to your company’s needs.

Offer an appealing work-life balance

With Gallup data showing that concerns over work-life balance are a major reason employees leave their jobs, offering your employees flexibility is a key way to prevent turnover. While it’s key for the millennial workforce, studies show work-life balance is important for workers of all generations.

Consider offering a hybrid or remote work schedule, offer flexible perks like summer Fridays and be sure to have a paid leave policy in place. Be sure that you are prioritizing your employees’ productivity, not their specific work hours, if possible. You should also review your employees’ workload periodically to ensure you are not overburdening them, encourage employee breaks and vacations and model that you prioritize work-life balance yourself.

Keep communication lines open to prevent employee turnover

Ultimately, the factors that prompt an employee to leave a job ― or to stay at one ― will vary depending on the specific employee’s needs. If you don’t communicate regularly with your workers, you won’t know if they’re struggling with issues that you could potentially prevent. 

Talk to your employees regularly, build trust and ensure that they feel comfortable coming to you with problems. Ultimately, if your employees know you care about them and are willing to work together to improve their experience, they’ll be happier at work and less likely to leave.