The Real Cost of Employee Turnover

Employee Burnout Leading to Employee Turnover

Certain levels of turnover can be expected within any organization.

But as the costs to hire and train new personnel quickly add up, employers need solutions to identify the right candidates earlier in the hiring process to fill their roles for the long term.

In small quantities, employee attrition can be intentional and productive, keeping the organization fresh with new talent and ideas, and sometimes in better culture alignment.

However, when churn rates for employees are high or more often than not unwanted, organizations end up wasting valuable time and money constantly training new hires, resources that could be better spent elsewhere.

Keep reading to learn the high costs associated with consistent employee turnover, the most common causes, and the changes your organization can make to improve retention.

Table of contents

Understanding Employee Turnover

Key Takeaways

  • Employee turnover costs can equal up to one-third of the employee’s annual salary.
  • Research shows that three out of four employee resignations can be prevented.
  • Organizations can reduce employee turnover by approximately 29% by prioritizing company culture, ensuring employees are aligned and engaged.

Calculating the Cost of Employee Turnover

The simple fact is that the costs to meet an organization’s needs rise when employees leave a company. The longer it takes to fill a role, the more likely current employees will need to take on additional responsibilities, leading to burnout, one of the highest causes of turnover. 

The true cost of employee turnover includes more than a potential loss in revenue. Here is a list of the most prominent costs associated with high turnover rates.

  • Recruiting Costs: Advertising available positions, interviewing, screening, and hiring.
  • Onboarding Costs: Training time, where management resources are pulled away from other vital daily responsibilities.
  • Lost Productivity: Current projects may be halted and current employees may find themselves filling multiple roles as new hires are brought up to speed.
  • Opportunity Costs: Time, sales, and customers can be lost while training a new hire.
  • Company Culture Impact: The stress associated with turnover can lead current employees to question if a company is the right fit for them. Employees are also at risk of feeling overwhelmed as a result of constant vacancies, leading to disengagement and decreased productivity.
It takes 42 days to fill an open position, on average in the U.S.

How Much Does it Cost to Replace an Employee?

In the United States, the average number of days to fill an open position in 2024 was 42 days

Once an ideal candidate is hired, it takes six to eight months to reach full productivity. The opportunity costs lost during this time are further compounded when considering the costs attributed to the hiring process, which can be between $2,792 and $4,425 per employee

Simply put, the average cost to hire a new employee is more expensive than most organizations even realize.

Understanding the costs of each stage in the hiring process, recruiting, and screening through training a new hire, can provide the opportunity to carefully strategize how your needs can be met when finding the right candidate.

  • Recruiting and HR costs: Advertising job openings, time and resources spent reviewing resumes, scheduling, and conducting interviews, background checks, reference checks, talent assessment, and more.
  • Benefits: According to Joe Hadzima, senior lecturer for MIT’s Sloan School of Management, benefits can equal 1.25 to 1.4 times the base salary. This means a base salary of $50,000 can be between $62,500 and $70,000 with items like medical insurance, retirement funds, federal payroll taxes, disability coverage, and tuition reimbursement included.
  • Training and Onboarding: The 2019 Industry Report by Training Magazine found that it costs an average of $1,286 to train one employee each year. This number can stretch into the millions with high turnover rates and multiple positions to fill frequently.

Breaking Down the Total Cost of Hiring an Employee

One of the most valuable talent analytics measurements is the cost-per-hire. This formula empowers recruiters to know the true cost of hiring candidates and better strategize how to effectively use their hiring budget.

Developed by The Society of Human Resource Management, or SHRM, the cost-per-hire divides external and internal recruiting costs by the total number of hires needed.

  • External Costs: Job postings, role advertising, background checks, assessment solutions, etc.
  • Internal Costs: Internal recruiters and hiring team members, employee referral bonuses, etc.
hiring-online

Employee Turnover: The Causes and Impact

One of the driving forces behind a successful organization is hiring, retaining, and developing top talent. 

Hitting revenue goals every quarter requires a hiring process that prevents wasting money on poorly fit employees or losing talent to the competition due to a slow or disjointed hiring workflow. 

Engaged employees with the skills to succeed are usually self-motivating, but unwanted turnover, those top performers who choose to leave an organization, still occurs.

What are the Primary Causes of High Employee Turnover?

According to research from Finances Online, at any given time, 51% of workers are actively looking for new job opportunities, a statistic, which makes it no surprise that managing engagement, culture, and turnover is on every hiring manager’s mind.

Many organizations believe that employees leave jobs primarily for better wages, benefits, or both. The reality is that these factors only account for 35% of employees’ decisions. The actual causes are quite different than what you would expect.

1. Poor Job Fit and Lack of Career Growth

Based on several thousand exit interviews, employee turnover research shows that one of the primary causes of top-performing employees leaving an organization is poor job fit. 

Business Insider found that one-third of employees quit because they felt they could not grow their skills or careers in their current roles. Employees become frustrated when they can’t do the job they want to do or feel they are not moving forward on their career path.

A Talent Audit, an ongoing review of competencies in each role, demonstrates that as much as 65% of job dissatisfaction that leads to unwanted turnover results from these mismatches.

How can you overcome this common cause of turnover? 

Run talent audits to identify sources and causes of failure for each position and the key skills to overcome those failure points. You also want to regularly assess the incumbents against the skills that ensure success and provide a guide for conducting exit interviews, documenting recurring turnover causes, and establishing a plan to reduce those defects.

2. Incompatibility with Management or Company Culture

As with any organization, the responsibility to correct incompatibility between subordinates and management lies with management. Ideally, the process should be that management conducts an analysis to determine which managers are best in which job, managing which people.

By identifying which managers are likely to thrive in any given role, companies can improve the job match of managers and subordinates, reducing unwanted turnover due to a lack of behavioral or work compatibility, and continually engaging employees.

This is where the cultural fit of new hires comes largely into play. Success in the workplace has become heavily dependent on not only hiring based on skill set and experience but also culture alignment across teams and entire organizations.

3. Lack of Work-Life Balance

It is no longer enough to compensate employees with a good salary and benefits package. 

As of July 2019, millennials overtook baby boomers for having the largest workforce. As of 2025, millennials now account for 70% of the global workforce – while roughly 27% is from Gen Z. 

As work culture expectations change, workforce turnover around the world does as well.

Most companies approach the rising generation as a powerful force for transformation in the workplace and view them as future leaders. Moreover, while new employees must adapt to some established company cultures, most embrace the idea that the organization itself must also change.

For these reasons, the need for a happier, healthier work-life balance in addition to fair compensation has become increasingly more valuable to job seekers, and with most of the worldwide workforce represented by this generation, it’s impossible to ignore the impact of poor work-life balance.

office workers making a decision

What is the Impact of High Employee Turnover?

According to the U.S. Department of Labor, a bad hire can cost your business 30% of the employee’s first-year earnings. Not to mention, the intangible costs associated with a poorly fit hire including lost productivity and the impact on company culture and sometimes even brand reputation.

Consistent employee turnover can cost companies millions of dollars and countless hours that would be more impactful in other business areas. 

When you take the time to prioritize this part of your business, the often undervalued hiring process, and understand the most significant causes that lead to employee turnover, you can begin to take the right steps toward increasing your ability to retain quality employees. 

Here are the top effects employee turnover can have on your business.

1. The Financial Costs of Hiring and Onboarding Employees

Direct and indirect costs will rise if a company’s employee churn rate continuously grows or stays above the desired level. 

As mentioned, the cost of a bad hire can equal approximately one-third of an employee’s base salary and can be broken down between hiring, benefits, training, and onboarding costs.

  • Hiring Process Costs: $2,792 – $4,425
  • Benefits Costs: 1.25 – 1.4 times the annual salary
  • Training and Onboarding Costs: $1,286 on average per employee

2. The Impact on Organizational Performance and Productivity

Recruiters, HR, and sales teams are not the only ones impacted by employee turnover. The risk of decreased productivity grows as others become expected to take on more responsibilities or work longer hours to meet deadlines with recurring, sudden absences. 

As a result, projects may be halted until roles are filled and a team can focus on new challenges.

3. Cultural and Morale Impact of Losing Talented Employees

When high-performing employees leave for any reason, a company’s culture and morale can take a hit for different reasons.

For some, there is a struggle with losing a trusted confidant or supportive team player, and the uncertainty of the team’s dynamic changing. While others may struggle to understand what the change means for their role within the organization.

Furthermore, the loss of a trusted and respected employee can cause others to question if there is something they’re not seeing and whether they should begin their search for a new job as well.

How to Improve Employee Retention 

The advantages of employee retention work inversely to the costs and risks of employee turnover. Hiring and onboarding costs decrease, customer relations improve, and employee satisfaction and loyalty rise. 

The most effective ways to proactively improve employee retention are accessible and provide countless benefits for a company.

  • Incorporate a talent assessment into your pre-screening workflow to uncover the candidate’s natural aptitude, interests, and potential for success.
  • Develop a clear onboarding program so new hires understand expectations and get a good sense of the company culture from day one.
  • Emphasize “moving the middle” by developing and growing current employees rather than solely focusing on new or underperforming employees.

Reduce Turnover with Spark Hire’s Team and Tools

By reducing employee turnover, managers can shift their focus from onboarding to developing top talent while cutting costs for the hiring process without cutting corners. But, of course, the first step to creating this type of prosperous change is hiring the right people the first time around.

Spark Hire’s Predictive Talent Assessment uses objective data analysis, backed by 40+ years of research and countless validation studies, to clarify candidate screening and selection, tools to develop your team, and insights to know that the team you have now is the right one.

By identifying candidates likely to thrive in any given role, early in the hiring process, companies can improve the job match of managers and subordinates, reduce unwanted turnover, and continually engage employees for ongoing success.

Interested in Learning More About the Impact of a Behavioral Assessment?

Contact Spark Hire today to learn more!

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