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Employee turnover can be extremely costly for businesses. Not only does it impact productivity and morale, but it also requires significant resources to find and train new talent. Our objective is to show you the effects of employee turnover, and provide valuable solutions on how to mitigate this costly occurrence. 

Employee turnover decreases productivity

Losing employees can decrease productivity simply because you have fewer team members to get work done. As the remaining employees get overwhelmed with more work to help make up the difference, their stress levels rise, making them far less likely to perform at their best.

Recruiting the right talent may take anywhere from one to four months, depending on the role's complexity. The delay, coupled with the costs, can put an enormous strain on remaining team members, as they may need to shoulder additional responsibilities.

Overworking your remaining employees can also lead to further turnover.

This kind of hit on your employees' productivity is also a hit to your organization financially. A HubSpot report found that lost productivity costs U.S. businesses a shocking $1.8 trillion every year.

Employee turnover lowers morale

One of the first impacts of employee turnover you'll notice is a decrease in employee morale. As more employees leave, the ones remaining may have lost a valuable work friend, which matters more than you might think.

Preserving the company's culture during this transition is crucial -- it's one of the key focus areas when someone leaves, with a direct impact on hiring and retention strategy.

According to a study by Office Vibe, 70% of employees say having a friend at work is the most crucial element to a happy work life. Moreover, 50% of employees with a best friend at work reported feeling a stronger connection to their organization.

So if one employee leaves, it can severely affect the culture and commitment your remaining employees have to the organization and their role.

Additionally, employees will ask questions about why their coworkers are leaving. They may also reflect on the reasons why, which can further damage morale and your culture.

The costs of turnover are high

Perhaps the biggest concern employee turnover presents is the financial costs of recruiting and training new employees to replace the ones you've lost. While employee turnover costs vary, there's no question it's something employers need to manage.

The average cost of turnover per employee can be thousands of dollars. Some studies predict that every time a business replaces a salaried employee, it costs six to nine months of their average salary. For an employee making $60,000 a year, that's $30,000 to $45,000 in recruiting and training expenses. However, replacement costs vary by wage and role of the employee.

For example, some report the average costs to replace an employee are:

• One to two times an employee's yearly salary
• $1,500 for an hourly worker
• 100% to 150% of an employee's annual salary for technical positions
• Up to 213% of an employee's annual salary for C-suite positions

What is the true cost of losing an employee?

In an article⁵ on employee retention, Josh Bersin of Deloitte breaks down key factors that contribute to the true cost of losing an employee.

These factors include:

• Recruitment costs: This includes the direct costs of hiring a new employee, like advertising, interviewing, screening, and hiring.
• Onboarding costs: The cost of the onboarding process, including training replacements and management time.
• Lost productivity: It may take a new employee one to two years to reach the productivity of an existing person, resulting in indirect costs to your organization.
• Lost engagement and impact on employee morale: Other employees who see high turnover tend to disengage and lose productivity, affecting team morale.
• Customer service and errors: New employees take longer to complete their work and are often less adept at solving problems.
• Training costs: Over two to three years, a business likely invests 10% to 20% of an employee's salary or more in training.
• Lost institutional knowledge: When highly-skilled or longtime employees leave, your organization loses some institutional knowledge, which is the combined skill set and experience of your business.
• Cultural impact: Whenever someone leaves, others take time to ask why. Additionally, there may be a customer impact on your business if your turnover affects your staffing amounts.

One of the reasons the real cost of employee turnover is such a mystery is that most organizations don't have systems in place to track exit costs, including recruiting, interviewing, hiring, orientation and training, lost productivity, potential customer dissatisfaction, reduced or lost business, administrative costs, and lost expertise. Calculating this amongst all employees for a total annual cost takes collaboration among departments (HR, finance, operations, etc.), tools to measure these costs, and reporting mechanisms.

Why do employees quit?

There are many reasons why an employee might leave their current role.

Some of the top reasons for employee turnover are:

• Lack of growth or career development opportunities
• Lack of employee engagement
• Poor company culture
• Poor employee benefits and annual compensation
• Disagreements with coworkers or management
• No clear business goals or direction
• Employees feel like their employers don’t consider their honest feedback or thoughts

In 2022, Employ surveyed more than 1,200 HR decision-makers and recruiters. According to survey results, the top three motivators causing employees to seek new employment are needs for an increased salary, remote work options, and opportunities for career growth.