How To Lower The Cost of Employee Turnover

Gusto Editors

Employee turnover is a growing issue for many businesses across all industries. If voluntary turnover is left unchecked, it can become a systemic problem that can be hard for a company to undo. Worse, it can cause a severe negative impact on brand reputation and the bottom line.

According to the U.S. Bureau of Labor Statistics, today’s employees only stay with their employer for 4.1 years. Stop and think about that for a minute—just four years. When you consider that it takes six months to two years to get a full-time new employee onboard and up to speed, you only have them for two more years.

Then consider that this is the average, and many employers will lose personnel even sooner than that. Taking the time to identify the underlying problems that might be contributing to high voluntary turnover can significantly improve a company’s chance of financial success.

This article will look at: 

  • Why Reducing Employee Turnover is Important
  • 6 Costs of Employee Turnover
  • Resources to help lower employee turnover

Why reducing employee turnover is important

It can be easy to get caught up in the short-term problems that emerge when an employee unexpectedly quits. However, it’s equally, if not more important, to look at the long game and identify why employees quit. Digging deep to find the potential root of the problem will go a long way toward preventing long-term damage that is hard to recover from.

Businesses that only look at immediate needs and ignore the fact they are experiencing a high turnover rate are likely to find themselves absorbing steep costs over time–and not just from the factors they can easily calculate. In addition to direct costs, high turnover also comes with indirect costs. Unfortunately, some of those hidden costs can put a damper on your company in several ways.

Any business that experiences a steady stream of regular resignations should prioritize addressing employee turnover. If they don’t, profitability could be negatively impacted.

Costs of employee turnover

If you are seeing employee turnover, its actual cost may be challenging to accurately calculate. While there are tangible labor costs that have a precise dollar amount attached to them, you have to also consider the intangible costs that might be difficult to see. Hidden costs caused by an exodus of employees can be much harder to ascertain the true value of. Unfortunately, all of them can negatively impact your bottom line.

Many experts generally estimate the average cost of turnover is one to two times of each employee’s salary to replace them. Consider the following every time an employee quits.

Recruitment and hiring

Attracting top talent in the first place is a huge win since your competition is likely to pursue the same candidates. If, after landing the candidate, they quickly leave for greener pastures, something is wrong. As you restart the recruitment and hiring process, the actual costs will become clear. Consider you’ve just spent a large part of your budget bringing new employees into your fold, and now you’re back at square one.

Onboarding and training

Every new hire you bring into your organization will need onboarding and training. In 2020-21, businesses spent over $92 billion on training costs. Not only are you paying employees actual time worked, but you’re also paying time for their managers and colleagues to bring them up to speed, taking them away from other meaningful tasks—tasks that will eventually need doing anyway.

Decreased employee morale

Unfortunately, an increase in voluntary turnover tends to result in a decrease in employee morale. This is due to many factors. Team members who remain in their jobs tend to become overworked because they take on the workloads of their departed colleagues. Couple this with the burden of training new employees. When these new employees quit after all the hard work current employees invested in training them, this leads to even more frustration and drags down morale.

Turnover also creates a work environment fraught with insecurity because everything is constantly in flux, leaving a sense of uncertainty for remaining employees. This can lead to lower productivity and a loss of confidence in management. Over time, teams become less cohesive since no one gets the chance to bond as teammates. Finally, due to all of the above reasons (and more), a company’s culture might become toxic, which can unleash a whole new set of costly problems.

Employer brand damage

Employers that experience a steady stream of resignations may find new difficulties emerging during the recruiting process. In today’s digital age, between social media and review websites alone, your brand name can become tarnished. If enough people leave, you could become known as the employer no one wants to work for, leading to significant challenges as you restart the recruiting and hiring process.

On the other hand, a strong employer brand reduces turnover costs. In 2021, Forbes reported, “A strong employer brand results in a 28% reduction in turnover and a 50% reduction in cost per hire.” That’s significant. You don’t want to become the employer everyone avoids when they see your job listings.

Loss of tacit knowledge

The longer an employee stays with your company, the more experience and knowledge they accumulate. If key members start leaving your company due to turnover-related reasons, this loss of legacy experience is vast. Not only do you lose crucial people in the employee development process, but you also lose the type of knowledge that can’t be taught and only comes with experience and organizational know-how.

Decline in quality of work

Companies unable to maintain a steady workforce tend to experience negative effects that directly impact the quality of work output. Businesses may see a decrease in good customer service, an uptick in errors, and slower productivity levels, to name a few problematic issues.

It’s hard to determine the actual cost of voluntary turnover until you experience these and other losses. Unfortunately, by then, it might be too late. A better approach is to proactively integrate strategies to reduce voluntary turnover, improve your business, and lower those costs.

How to help lower employee turnover

To retain your full-time and hourly employees, you can make changes to help combat the top reasons why employees leave. The following employee retention strategies will go a long way toward reducing turnover rates and boosting your reputation as an employer.

Offer competitive salaries

Compensation is one of the primary reasons why people accept a job. If you want to attract and retain the best employees, you’ll need to offer competitive salaries and solid benefits packages. Remember, it’s not just an annual salary for your staff members you need to consider. Total compensation includes both salary and employee benefits. Paid leave (PTO) and healthcare benefits are two of the most essential components of a compensation package.

Stay in tune with employee engagement

Disengagement is a top contributor to high employee turnover. To combat this, you can place a priority on engagement. Start by encouraging your team to share feedback and contribute while allowing them autonomy in their jobs. Set benchmarks for them to achieve to help bolster their sense of accomplishment and experience.

You can also solicit regular feedback from your team through assessments, meetings, and honest talks. Take any feedback you’ve surveyed seriously. This way, your employees know you feel it matters what they think when they see you integrating good suggestions. In time, you’re more likely to see an uptick in responsiveness and engagement.

Offer training and professional development opportunities

One of the top reasons people leave their jobs is a lack of emphasis on employee career development and training opportunities. In 2022, a Harvard Business Review article shared a few telling statistics from surveys conducted by various organizations. One found a whopping 92% of employees felt accessing professional development was “important” or “very important.”

Furthermore, 86% of those surveyed indicated they’d change jobs if another employer offered more opportunities to grow themselves professionally. Ways you can encourage and provide professional development include various formal and informal options:

  • Industry seminars
  • Online learning
  • Professional development days
  • Technical skills training
  • Conference opportunities
  • In-house mentor program
  • Tuition reimbursement (or partial)
  • Industry certification opportunities
  • Lunch and learn programs

Furthermore, you can meet with individual employees and learn their goals. This way, you can work with them to help identify a clear career path. You can also help them explore potential opportunities in your business or map out the steps they should take to move into leadership or other desirable roles.

By investing in ways employees can experience career growth, you’ll not only be more inclined to increase your retention rates but attract new talent as well.

Invest in boosting employee morale

A strong company culture is one of the foundational aspects you’ll want to achieve as a business. Without a good culture, employees are less likely to stay. To combat low employee morale, at a minimum, you’ll want to watch for signs of burnout or toxic company culture.

Even better, you can do more than the minimum by investing in ways to boost employee morale. To start, you can talk to your employees to see how they feel–learn what aspects of the job are stressful and negatively impact their views about work.

Other steps you can take include recognizing employees for a job well done. Even sending out a congratulatory company-wide email can mean a lot to employees and doesn’t cost a thing.  Additional ways to reward employees include offering bonuses, planning team-building activities, hosting Friday lunches, providing performance-based incentives, or adding an employee wellness program, to name just a few ideas. 

Bottom line: offering a little thoughtfulness can have a significant impact on overall organizational morale.

Offer flexibility

To increase your retention rate, consider emphasizing ways for employees to achieve a healthy work-life balance. Options to consider include:

  • Permitting remote work options
  • Integrating hybrid work schedules
  • Offering flexible hours/flextime
  • Allowing for compressed workweeks
  • Establishing positions with job-share duties
  • Offering comp time in lieu of overtime
  • Giving grace time for hourly employee clock-in times
  • Allowing employees to work later to make up time

These are just a few potential strategies. Talk to employees and see what they want and then accommodate where feasible. In a world where technology is readily available, offering flexibility is probably one of the best benefits you can provide to help them remain happy in their jobs.

Hire the right people

Even if you’re desperate to hire more staff, make sure each new hire is the right one. Putting warm bodies in positions to fill roles won’t reduce your costs in the long run. In fact, this approach may even negatively impact your business. A better alternative is to hire the right people in the first place. Be sure to write accurate job descriptions so you attract suitable candidates. Additionally, using HR onboarding tools, such as those offered by Gusto, can streamline your hiring process and allow you to focus on other tasks associated with the recruiting and hiring process.

Conduct exit interviews

Exit interviews can prove to be valuable tools to provide good insight. By speaking with every departing employee honestly and frankly, you can learn precise reasons why people are unhappy in their jobs. Once you identify key issues, you can take steps to improve processes or resolve problematic issues in your work environment. Make it a point to conduct an exit interview every time an employee leaves. Then, try to cull common reasons that may lead to the biggest underlying problems associated with a high turnover rate.

Gusto Editors Gusto Editors, contributing authors on Gusto, provide actionable tips and expert advice on HR and payroll for successful business management.
Back to top