The Hidden Costs of Employee Turnover

The hidden costs of employee turnover include hiring expenses, missed deadlines, training and onboarding expenses, and a higher risk of bad hires. Indirect costs include loss of company knowledge, bad reputation, and increased turnover risk.

In this article, you will find a more detailed description of these costs, along with some factors that actually affect employee turnover and what steps to take to address them.

Average Cost of Employee Turnover

Research shows that replacing a single team member can cost anywhere between one-half and double that person’s yearly salary. 

While you can measure direct expenses, such as hiring and training, it’s the invisible costs that add up and make the financial impact even greater. To avoid these costs, it’s so important to actively listen to your employees and strive to create a company that people want to contribute to!

Direct Costs

Direct costs are the most visible and easiest to measure when an employee leaves your business.

Hiring Expenses

This category covers the costs of bringing in a new team member. These can range from recruitment agency fees and job postings to background checks, relocation, and the initial equipment and tools. Even your HR team’s time adds to the total. 

While SHRM reports that the average recruitment cost is about $4,700, this number can rise dramatically in competitive job markets or for specialized roles. Tracking these costs carefully gives you a clearer picture of the real investment each hire requires.

Missed Deadlines & Project Delays

Missed deadlines and project delays are one of the most important hidden costs of employee turnover. 

When a team member departs, critical projects may be delayed or stalled, especially when it comes to roles that demand specialized expertise. This creates stress for the remaining employees who must cover the gap, which can reduce both quality and efficiency. Over time, frequent turnover shifts your focus away from building productivity and toward constant replacement efforts.

Training & Onboarding Expenses

A new hire rarely becomes productive overnight. They need time, guidance, and often formal training before they can contribute fully. This means other employees must pause their work to help, which slows overall progress. According to a 2024 report, businesses spent an average of $774 per trainee, with small ($1,047) and medium businesses ($739) spending the most.

Increased Risk of Bad Hires

Higher turnover means that you have to constantly find replacements. Unfortunately, one of those replacements can be a bad hire, and the impact of hiring the wrong person reaches far beyond their initial salary. It is estimated that a bad hire can cost about 30% of that employee’s first-year earnings.

Indirect Costs

Indirect costs are less visible than direct costs, but they often have a significant long-term impact on your business.

Loss of Company Knowledge

Departing employees take with them valuable expertise, processes, and client relationships. This loss of institutional knowledge is difficult to replace and can lead to constant mistakes, inefficiencies, and weaker customer experiences.

Erosion of Team Cohesion

Strong teams depend on trust, collaboration, and a sense of belonging. Frequent turnover disrupts these bonds and forces teams to constantly adjust to new dynamics. According to a report by Salesforce, 75% of workers prefer to interact with colleagues as they would with friends. When turnover interrupts these relationships, the sense of connection weakens, and teamwork suffers.

Bad Reputation

High turnover can damage how your business is perceived both internally and externally. Employees may question job stability, while clients or customers may lose confidence in your ability to deliver good results consistently. This perception can make future hiring and obtaining new clients more difficult.

Increased Turnover Risk

Employees who see colleagues leave may begin to consider their own options. Combined with increased stress and lower morale, this can trigger a wave of departures that multiplies the costs and challenges for your business.

How to Determine Turnover Costs?

Calculating turnover costs can be daunting, especially because they widely vary for each industry and business. Here’s a simple guide.

1. Determine the period of measurement: This period can be a month, quarter, or year. This ensures that you get reliable results.
2. Calculate your turnover rate: Use the following formula to calculate your turnover rate: turnover rate = (employees who left / average number of employees) × 100.
3. Calculate the average cost of a departure: The average cost of each person who left the company within a timeframe.
4. Calculate turnover cost: Use the following formula: total number of staffers x turnover rate x average cost of departure.

Factors Affecting Employee Turnover

Several factors can influence why employees choose to leave an organization, and understanding them can help you reduce turnover. 

According to Gallup, 51% of employees are either watching for new opportunities or actively looking for another job, showing how quickly some of these factors can push people to leave the company.

Overwork

When employees consistently face heavy workloads without enough support, they become exhausted and disengaged. Over time, this stress leads to burnout and drives people to seek healthier work environments. 

Inconsistent Management Styles

Managers who apply policies unevenly or lack clear communication create confusion and frustration. Employees need stability and fairness, and inconsistency often pushes them away. In a study, Gallup found that 42% of employees who left voluntarily believe their organization or manager could have done something to keep them from leaving, highlighting the importance of consistent leadership.

Lack of Team Member Recognition

When hard work goes unnoticed, employees feel unappreciated. Recognition and appreciation are key to building loyalty and motivation, while the absence of them makes people feel replaceable.

Learn more about Employee Empowerment.

Few Opportunities for Professional Development

Employees value training, learning, and mentorship to grow their skills. Without access to development, they may feel stuck and look for employers who invest in their growth.

Little to No Career Advancement

A lack of clear career paths or promotion opportunities can make roles feel like dead ends. Ambitious employees often leave to find organizations that offer upward mobility.

Low Salaries

Compensation plays a major role in retention. If salaries do not reflect the market or performance, employees will explore better-paying opportunities elsewhere.

Inadequate Benefits

Benefits such as healthcare, retirement plans, and flexible work arrangements matter to employees. Weak or outdated benefits can drive people to companies offering stronger support.

Poor Company Culture

A toxic or disengaging culture erodes morale and reduces commitment. Employees are more likely to leave if they feel disconnected, unsupported, or unhappy in their daily environment. 

Incompatibilities Between Team Members & Management

Conflict or a lack of alignment between leadership and staff damages trust. Employees who feel misunderstood or undervalued by management often decide to leave.

Here are some additional tips on how to reduce turnover!

FAQS – The Hidden Costs of Employee Turnover

How Do Turnover Costs Differ Between Industries?

Turnover costs can vary widely depending on the industry. Here are some examples:

• Hospitals reported an 18.3% turnover rate in 2024 (source)
• Banks saw a 19.8% turnover rate among nonofficer staff in 2023 (source)
• Manufacturing recorded a 1.6% quit rate in 2024 (source)

Are Turnover Costs Higher for Senior Employees Compared to Entry-Level Staff?

Yes, turnover costs rise with seniority and specialization. Losing high-level or specialized employees is significantly more expensive because it requires longer recruitment times and the replacement of years of accumulated expertise.

What Role Does Company Culture Play in Turnover Rates?

Company culture plays a critical role in retention. According to SHRM, a positive culture is a competitive advantage. When employees feel valued, respected, and connected to meaningful work, they show greater productivity and a lower likelihood of leaving.

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Ken Rusk is a blue-collar entrepreneur who has started several successful endeavors and mentored hundreds of young people in their pursuit of a satisfying career and fulfilling life. Discover how Ken’s approach to life and work can help you set and achieve your goals – all while avoiding the nearly inescapable trap of college debt. Get a copy of the Wall Street Journal bestselling book, Blue Collar Cash today!