Employee Churn: What it Costs and How to Stop it

Employee churn is costly. From recruiting to onboarding to training, it’s clear that replacing an employee who voluntarily leaves your company takes time and money. 

A pre-pandemic human capital benchmarking report from the Society for Human Resource Management showed that across all industries the:

• Average annual overall turnover rate was 19%
• Time-to-fill averaged 42 days; and
• Cost-per-hire was $4,129.

A more recent, but still pre-pandemic, US turnover survey from Mercer found that the average voluntary turnover rate was 15%. Meanwhile, LinkedIn data from before the pandemic showed that the technology industry had the highest turnover rate at 13.2% annually and yet another study by Mercer pegged the tech sector’s turnover rate at 20.9%.

Regardless of which statistics you consider, or when they are from, employee churn is a problem for companies. It may be even more so after the pandemic.

Though the labor market is not tight like it was before early 2020, retaining the employees that you do have is essential to maintaining organizational knowledge and efficiencies while avoiding the costs and challenges of replacing employees.

Knowing how much employee churn costs you and how to slow it can help you increase productivity by improving the employee experience.

Employee Churn Costs

Estimates of the costs for replacing employees vary. Just a single article that explored how much employee turnover really costs offered the following thoughts.

• Losing an employee costs a company from tens of thousands of dollars to 1.5–2.0x the employee’s annual salary.
• Turning over a highly-skilled job costs a company 213% of one year’s compensation for that role.
• A company would add $1.3 million in net value by keeping a salesperson for three years instead of two.

Perhaps most notably, the article’s author, a co-founder of a performance management service, noted that HR thought leader Josh Bersin explains that employees are “appreciating assets that produce more and more value to the organization over time, which explains why losing them is so costly.”

Depleted employee morale, additional turnover, and diminished employer brand are just some of the consequences of losing an employee, according to a Built In blog post on the hidden costs of turnover.

Direct costs of employee churn include the expenses for recruiting, onboarding, and training. It also could take several months for a new employee to reach “full productivity mode” and they will require support from managers and co-workers in the meantime, thereby decreasing their productivity, according to a Forbes column on how the cost of turnover can kill your business.

If you would like to calculate how much employee turnover costs your company, you can find online resources like a spreadsheet from ERE.net or a calculator from Adecco USA.

Employee Churn Solutions

Now that you know how much employee churn costs your company or at least an idea, you can focus on slowing it by identifying the causes and developing solutions. Start with Work Institute’s 2020 Retention Report.

Based on data from last year, Work Institute’s report notes that voluntary turnover increased by 2 million jobs, reaching a total of 42 million positions in 2019, which cost employers more than $630 billion. One of every three workers will voluntarily quit by 2023 if patterns hold, researchers wrote.

But 75% of employee turnovers are preventable, Work Institute says. Focusing on career development, work-life balance, and manager behavior make the biggest impact. Responses like improving training and succession planning, offering flexible work schedules, and coaching managers help.

HR News offers suggestions for reducing high-staff turnover as well. Consider eliminating performance reviews, checking your incentive structure, and recruiting from within to fill positions, it says.

Tracking employee turnover can also be beneficial because it helps you determine the effectiveness of your people management strategies, according to a Paycor blog post. Paycor says that critical turnover metrics to measure include: 

• Overall retention rate
• Overall turnover rate
• Voluntary turnover rate
• Involuntary turnover rate
• Retention rate of top talent 
• Turnover costs

Paycor also suggests scheduling exit interviews with departing employees if you don’t already so that you can improve employee engagement and retention.

Losing an employee is costly. But it doesn’t have to be inevitable.

Reduce employee churn at your company by assessing and addressing your voluntary turnover. You will likely find that your employee experience improves and productivity increases as well.