How much does employee turnover cost to the organization?

Employee turnover costs

The word “employee turnover” has an ugly ring to it because of the huge price a company has to pay in terms of recruitment costs to replace lost talent. Bringing in a new employee also means massive amounts of training costs and expenses in terms of lost productivity during the time they take to settle in. Further, the entire organization’s reputation takes a hit if large numbers of employees leave every year. But what is the actual extent of this cost and what it takes to manage retention of employees?

Employee turnover cost is quite significant in the long run for any organization. According to an estimate, losing an employee leads to a loss of around two times the compensation of that employee. The real cost can go up based on the skill level and experience of the employee. When it is an hourly worker, employee turnover costs 1500 USD per employee. As you move up the career ladder to the C-suite, costs of employee turnover can go as high as 213 percent of the departing employee’s pay. 

Given the significance of employee turnover rate to your bottom-line, it makes sense for organizations to have a thorough understanding of:

  • What constitutes employee turnover? 
  • Which industries are affected the most by high levels of employee turnover? 
  • How to determine your employee turnover rate and why it is important?
  • How to reduce the number of employees leaving you every year? 

What does employee turnover mean? 

Employee turnover is defined as the number of staff who leave your company in a particular period. If your employee turnover rate is high, it means lots of employees are leaving your company. Meanwhile, if you have a low turnover rate, this translates to you having a well-run office that current employees find difficult to say goodbye to. Thus, you should try to find ways to retain employees in your organisation. 

How to figure out the employee turnover rate of your organization?

The calculation of employee turnover rate is pretty straightforward even if you aren’t a numbers person.

First, you need to figure out the average number of employees who worked for you in a particular year. This is done by adding the employees you had at the beginning of the year with the total number of employees you had at the end of the year and dividing the sum by 2.  

Now, take the number of employees who departed and divide it by the average number of employees. Since the turnover rate is a percentage value, you need to multiply the result by 100 to get the final answer.

Annual employee turnover = (no. of employees who left in a year / average number of employees who have been in your company that year) X 100.

Is your employee turnover rate healthy?

This can be determined by knowing the average turnover rate and comparing it with the rate at which employees are leaving your company. Note that you also need to take into account the turnover rate of your industry.

LinkedIn estimates that globally, 10.9 percent of employees are lost by companies. In the US, the number can be anywhere between 12 to 15 percent, and the percentage may increase in sectors that mainly have students and part-time workers, such as retail and hospitality.

Employee Retention Cost

If you find this fascinating, here are a few more stats from Catalyst that will give you some perspective on employee retention and turnover rates around the world.

  • Slovenia, Hungary, Finland, Sweden, and the US have had the highest year-over-year spike in talent shortages.
  • Most of the employees (over 80%) who left their jobs did so for a better opportunity.
  • At least half of employees in the US have considered quitting.
  • India is the only nation that is set to have a surplus of 1.1 million skilled laborers by the year 2030.

In the past decade, turnover costs have nearly doubled thanks to training, lost productivity, separation, and replacement costs.


Though there are lots of challenges in employee retention within any organization, there are also steps available to reduce the turnover. Here are some of the steps that you can find useful to reduce the employee retention cost.

8 Essential Steps to reduce employee turnover

1. Hire the right people 

Hiring should never be an impulsive decision. Rather, it should be a well-thought-out decision that takes into account the person’s skills, the ability to fit into your company culture, and the relevant experiences and references they have. 

Further, you need to prioritize creating a comprehensive job description that will attract only the best people. Once you have hired strong candidates, you can rest assured they are working incessantly to further your company goal and delivering results, which will, in turn, improve employee engagement rates.

2. Avoid overworking employees

According to a survey by Deloitte, around 42 percent of employees have left a company due to burnout. But it is worth noting that even underutilization can be as much of a problem as putting too much pressure on employees. So, prioritize the development of a highly productive workforce that is also well-rested.

3. Cut down on bench time 

With advanced planning for projects in your pipeline, you can cut down on bench time for employees. This is essential as bench time brings down your return on investment and prompts the employees to look for better career growth opportunities.

4. Provide flexible work schedules

According to a report from globalworkplaceanalytics, a large portion of the workforce will continue to work from home even after 2021. The reasons may vary; some have gotten used to the convenience while others may have lingering health concerns. 

Due to this, allowing remote work and flexible timings will prove to be an incentive for employees to stay with you longer. With flexible work timings, you also get more healthy and motivated workers. 


5. Reward high potential employees

To ensure you retain your top talent, you need to dedicate the time and effort needed to identify, reward, and nurture your top employees with leadership roles. This will serve as an incentive for others to put in their best effort while also letting your best workers know they are highly valuable employees, reducing the rate of employee turnover.   

6. Conduct skill and team building activities

According to numerous studies and its statistics from lorman, developing the skills of employees is a fantastic way to show them that the company is invested in their growth, which is a guaranteed way to get them to stay longer. Further, with on-the-job training, employees will feel the need to take on larger responsibilities within the organization, leading to higher employee retention rates.

Team building activities

According to Gallup, a key factor driving employee frustration is isolation. If employees are isolated, they may feel a lack of motivation. This is where effective team-building activities come in. Introducing team-building activities, such as assigning a mentor to newcomers, is a great way to boost profitability and employee retention rate. 

7. Be clear about your company’s goals

To improve your retention rates, make sure you convey how your employees’ work is helping the company achieve long and short team targets. Knowing they are contributing to the company’s bottom line and brand image will motivate them to be engaged in their work, which is an important driver of job satisfaction and employee morale.

8. Provide consistent feedback to your employees

Ideally, you should have regular feedback sessions with your employees, where you show them you are grateful for their contributions and point out where they can improve in terms of metrics, such as performance ratings. Remember to also take input from them with regards to where you can improve as a manager. 

Moreover, you can use exit interviews to figure out why people are leaving. Doing so will play a key role in ensuring high employee satisfaction and eventually retention as well.


Employee turnover cost is one of the most devastating expenses your company will incur if the right steps to prevent it aren’t taken. Fair compensation needs to be your top priority if you want a successful company where employees stick around for long. But remember that a pay hike won’t compensate for bad company culture.

When you focus on improving the recruitment process and devising solutions to create a positive work environment where your employees can thrive, you will see how you no longer have to worry about low employee retention rates that are killing your business.

Merin is an HR professional with an MBA in Human Resource. She likes doing a lot of research and study in the field of Human Resource and can't help but share her knowledge on the same in this platform. She is also a great cook and during her free times she keeps experimenting with new dishes. Know more about Merin by clicking here.
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