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The Real Cost of Employee Turnover

Palmer Barefield Dec 2, 2022 2:52:00 PM

High turnover trends have been hurting businesses now more than ever. In fact, according to the Job Openings and Labor Turnover Survey, starting in 2020 as a result of the global pandemic, employee turnover rates sky-rocketed, exceeding the average rate of employee turnover by 10%. And recovering from the pandemic has proven to be a long-lasting effort over the last few years as turnover rates continue to fluctuate heavily; affecting more than money and time lost. 

No matter the company, employee turnover is inevitable and detrimental – but preventing it might be easier than you’d think – and well worth it. Taking the correct measures to discover the reasons behind it and creating a proactive framework to prevent it, will pose several benefits to your business. 

We’ve taken a deep dive into understanding employee turnover, where it originates, how to take a proactive approach to prevent it, and the underlying impacts it can have on a company, its employees, and its culture. 

Let’s start with the consequences that unfold as a result of employee turnover.  

Poor Engagement 

It’s no breaking news that employee engagement has taken a proper hit over the last few years. As a matter of fact, according to Gallup’s Employee Engagement study, after following a steady incline, employee engagement has digressed back to a declining rate after almost a decade of continually increased engagement. Starting in 2020, employee engagement averaged at an impressive 36%. As of 2021, the 36% engagement rate dropped 2% to diminish down to 34% and continues to drop in early 2022 as the rate now sits at 32% of engaged employees. 

And to make matters worse, the same study recorded that out of these employees, 17% of them are actively disengaged, increasing 1% from the previous year. Additionally, the ratio of engaged to actively disengaged employees is 1.9 to 1, a decrease from 2021’s rates of 2.6 to 1, which is alarming when you compare it to the annual recording of 2019’s metrics, which came out to a ratio of 2.7 to 1.

Based on the unpredictable fluctuations in employee engagement, it's clear that engaging employees must be a clear and consistent effort made by the organization. So what are some proven ways to engage employees and to further maintain that engagement? 

Invest in your employees 

Now more than ever, employees are expressing their interest in continued learning and training distributed by their companies. In fact, according to  Axonify’s State of Workplace Training survey, 92% of survey respondents agreed that the use of a well-organized, leadership development program directly impacts their level of engagement. Investing in employee development is another way to show engaged and even disengaged employees that you value their personal and professional development and that it is impactful to your business. By providing tools and skills to effectively address adversities and approach challenges with innovative strategies, you're enabling your professionals to do their best work. 

Another strategy to boost engagement across teams is to create a foundation of trust based on your values. The most successful businesses place their values at the forefront of everything that they do. By guiding decisions with your core values, consistency is created in every aspect of your business. That newfound consistency builds trust between employees and their employers; enabling employees to feel secure in their role with your company.

Poor Company Culture

Believe it or not, company culture can make or break a job seeker’s decision in moving forward with your company, or even taint your current employee’s perception of the company. 

Company culture can be defined as a set of shared core values and practices that define an organization, both internally for employees and externally as part of its public image. In other words, a company’s culture is the company’s personality; and having a strong culture is non-negotiable for thriving businesses for several reasons. 

Employee Satisfaction. Employees want to know that their work is making a difference to the company. Being part of a culture that acknowledges wins and remains resilient through challenges builds internal relationships and yields a sense of trust amongst employees.

Employee Engagement. When employees feel that their work environment encourages open communication, they are more likely to feel confident in sharing their opinions and ideas with their colleagues, leading to better communication, increased innovation, and more collaborative teams. 

Decreasing Turnover. When an organization is experiencing a heightened amount of turnover, the entire organization suffers. Aside from the money spent and time lost that the company itself forfeits, employees are tasked with heavier workloads and communication gaps. In many cases, it leaves employees to question why their co-worker left in the first place; creating doubt and a sense of distrust towards the company. 

Attracting top talent. As crazy as it may seem, company culture can make or break a job seeker’s decision in moving forward with your company, or even taint your current employees' perception of the company. According to a recent study conducted by Terra Staffing Group, 47% of professionals value companies that practice a welcoming culture. And at a time when the need for talented professionals is at an all-time high, culture matters more than ever.


The fact of the matter– people work to get paid. Therefore, it's no surprise that salary is a topic of conversation when it comes to reducing turnover. To put things into perspective, a survey conducted by Fortune found that out of 16,500 job jumpers, 30% of leaving employees stated pay as a reason for leaving.  So it’s important to be aware of the salaries and benefits being offered in your competitive landscape. Especially after knowing the real cost of turnover. 


How Much Does Employee Turnover Cost?

Adding a new member to your team is exciting – so exciting that you might not be factoring in all of the costs associated with hiring and onboarding that employee. If we are considering all of the steps it takes to successfully hire and onboard a new employee,  we are talking about the cost of recruitment, the cost of lost productivity while a position is empty as well as during the training period, the additional salary cost of a new hire, and the less quantifiable cost of potentially low morale among the remaining team- all very time consuming, very expensive tasks. 

Calculating Your Employee Turnover Rate

To put it in numbers, according to Employee Benefit News, it costs employers an average of 33% of a worker’s annual salary to replace them. That being said, hiring isn’t cheap, so it is important to take the necessary means to prevent turnover and maintain those employees once they have joined your team. For example, if it takes 33% of an employee’s salary to replace them, it would cost $20,000 to replace an employee making $60,000, $33,000 to replace an employee making $100,000, and $60,000 to replace an employee making $200,000. 


How to Reduce Turnover 

To sum it up, employee turnover poses a threat to every business. It’s a very expensive loss, but luckily, it’s one that can be prevented. When you make an effort to understand what your employees value, it’s well-received and much appreciated. Building an organization that fosters an environment of satisfied employees is not a simple task, but the rewards have proven to be worth it. To dig deeper, the following three steps are a good starting point.

Improve or Maintain Company Culture. Ultimately, a well-built company culture increases employee engagement, satisfaction, and performance. All of those in turn reduce employee turnover. When employees feel that they are making an impact on a company, they will thrive; boosting confidence in their abilities to perform and also lessening a desire to leave. 

On the contrary, if your company is lacking a strong culture, you could be facing the cost of turnover, which we’ve already seen is significant. In addition to turnover, a poor company culture damages your company's reputation; encouraging job seekers to look elsewhere and customers to contemplate going with your competition.

Keep Employees Engaged. There are several ways to boost and sustain your employee’s engagement. To start, be sure to understand your employees’ values and try to align them with your company’s values. Knowing what your employees' value is helpful in understanding their preferences. It also provides you with insights into where their priorities lie. For instance, studies show that people are willing to give up financial benefits to work for an organization that practices corporate social and environmental responsibility. 

Reward High Performance. Another avenue to explore that will increase engagement is to invest in high-performers. Your employees want to grow their skillset. Learning new skills from an external outlet can help your employees view challenges differently and encourage creativity when it comes to trying new avenues to derive a solution. Providing leadership development opportunities can do both of those things. And when your high performers are feeling their best and doing their best, it will radiate throughout your organization, creating a ripple effect of high performance.

Spend Money Investing in Employees, Not Replacing Them 

All-in-all, replacing an employee is very costly, time-consuming, and damaging to your organization in many ways. Investing in your employee’s development will reap several benefits for the individual, their team members, and the entire community at your organization, as they share the knowledge from their leadership development training. That being said, investing in your employees is a proactive way to avoid the potential risk of having to replace them. 

Improving your culture, encouraging engagement, and igniting and balancing high performance is an intricate parts of having a successful business. Discover the benefits that Valor Performance Coaching has already provided to organizations across several industries and team structures. We will work with you to understand opportunities, identify potential risks that your company may face, and create customized solutions to overcome those obstacles. Request a demo to learn more about what Valor Performance Coaching will do for your business.  

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