The True Cost of Employee Turnover and 6 Ways to Remedy It

Steadily rising turnover rates have caught my attention lately. While employee turnover (or churn) is something employers often track, it can be difficult to diagnose and even more difficult to remedy. 

As difficult as it may be to diagnose and remedy, it’s not impossible. I happen to have a few tricks up my sleeve to help you reduce turnover. 

Before I dig into how to reduce churn, I'll cover the definition of employee turnover and its direct and indirect costs.

What Is Employee Turnover?

Employee turnover relates to the number of employees who leave the company either voluntarily or involuntarily.

In June 2020 alone, the rate of employees quitting increased to 2.6 million as reported by the Bureau of Labor Statistics. Many are quick to blame the millennial generation for being fickle, yet 51% of employees of all ages admit to looking for a new job while 35% have changed jobs within the last three years, according to Gallup

Some reasons an employee leaves (voluntary turnover):

  • The employee is offered a better annual salary elsewhere
  • Pay equity issues 
  • Poor skills match
  • Burnout
  • Lack of career development opportunities
  • Poor management

Here are some reasons an employee is let go (involuntary turnover):

  • Lack of productivity
  • The employee breaks the code of ethics
  • Poor culture fit
  • Mismanaged budgets

No matter what the cause for the turnover, it can hit your bottom line hard.

What Is the True Cost of Employee Turnover?

The cost of employee turnover is high because of the many indirect costs associated with an employee leaving on top of the cost of re-hiring.

Indirect employee turnover costs include:

  • Low employee morale which may lead to lack of productivity 
  • Lost knowledge that leaves with the employee who is moving on
  • Lack of employee engagement before their leaving their job
  • Loss of privileged information to competitors
  • Burnout of remaining team members who cover for productivity loss
  • Employee retention issues with the remaining team
  • Labor costs of hiring managers who are supporting the recruiter and human resources

The direct costs are easier to quantify. Some examples are:

  • Recruiting costs including administrative and coordination effort
  • Pre-employment screening costs, including background checks
  • Onboarding and training the new employee
  • Loss of productivity while the new employee is in training
  • Remaining PTO that's paid out to the employee 
  • Marketing for the open position(s) on job boards like LinkedIn
  • New hire bonus offered as an incentive

According to Gallup, replacing an employee can cost 1.5 times their annual salary.

To put that into perspective: the cost of employee turnover for an intermediate manager making an annual salary of $60,000 means an average cost of $90,000. For a junior with an annual salary of $40,000, the cost can get up to $60,000 in replacement fees alone.

To learn how to calculate your employee turnover rate, check out this simple guide.

Let's move on to my proposed solutions.

6 Ways to Increase Employee Retention

Cost of employee turnover: Employees raising hands in meeting

Since I've given you the bad news first, it's time for some good news. 

Employee turnover is preventable. With a better understanding of your unique workplace and culture, you can save the day. 

Here are the six main things to consider to effectively boost employee engagement levels.

1. A Solid Onboarding Process

An effective onboarding process is one of the most crucial aspects of talent retention. Only about 20% of companies achieve a proactive approach to onboarding, according to SHRM. That means 80% of companies are missing the mark. 

This can frustrate new hires who aren't achieving their full potential. That's when they start to look to greener pastures. 

Get access to deeper insights to better coach new hires with Searchlight reports. It collates reference data to uncover the most-mentioned coachable areas in the candidate. This enables an organization to increase belonging by creating a more personalized onboarding experience for new hires. .

2. Mentorship and Career Development Opportunities

Your team wants to feel that you've invested in their success. Take time to consider their interests by incorporating discussion around their future moves within the company and upward mobility. Supportive career chats create deeper engagement.

It's worth noting that managers don't always have to be mentors. Providing a professional development fund can be beneficial. This way, employees can pick a mentor on their own terms. This level of empowerment transforms into the engagement required to stay motivated.

3. Transparent Communication

Transparent communication is the foundation for any healthy workplace environment. When employees leave, a manager may be tempted to gloss over it to avoid discomfort or awkwardness.

Open conversations with the team allow employees to share their concerns. This form of transparency can dispel tension or any gossip surrounding an employee's departure.

4. A Purpose-Driven Team

Work is a form of identity. It helps when employees are proud to contribute to the company. If there isn't a strong tie to purpose in their work, apathy will very often lead to job searching. 

Celebrate each teammate's individual successes. To make it fun in a gamified way, create a leaderboard or friendly competition with other departments towards shared business goals. 

Sometimes even a handwritten note from the founder can be enough for an employee to feel recognized and tied to their purpose on the team. The most important thing is to honor employees in the ways that are important to them.

5. Competitive Pay

All employees appreciate a healthy paycheck. Stay current on market trends and update your pay scale as needed. Offer candidates increases when the market rates have increased. This is a surefire way to surprise and delight them, build loyalty, and grow trust.

6. A Two-Way Feedback Culture

Master feedback and you will boost the retention rate. 

Many companies ask for employee feedback via engagement surveys, performance reviews, and weekly one-on-ones. The most valuable part comes after that step — taking action. We've all experienced feedback fatigue. This is when fantastic feedback is offered and there's zero follow-through. It's a breeding ground for disengagement. 

Hold leadership accountable to one action item from every feedback session. State out loud with employees exactly what the action item is and follow up at an agreed-upon time. 

This simple approach to feedback will encourage the team to be more forthcoming and honest. By creating a feedback culture it makes room for meaningful insights that will help retain people.

The Cost of Employee Turnover Is About More Than Money

Cost of employee turnover: Employees clapping their hands

It's rare that employee retention is the first area we think to focus on in our business. We are optimistic and want to believe that employees are happy working with us. 

The combined financial burdens of turnover and the toll it takes on the team’s morale can make us think twice about our retention strategy.

Take a moment to zoom out and take in the big picture. Run a self-diagnostic with your team and ask them what their number one criteria for a positive workplace environment is. I'm positive it will land in one of the six categories mentioned above. Acting on feedback that's specific to your team will cement more positive and long-lasting employee experiences.

Want to hire more high performers and increase retention?

Serchlight’s Talent Intelligence has got you covered