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Employee retention: The real cost of losing an employee

Written by: Gabrielle Smith
September 17, 2021 at 8:28 AM

For organizations to thrive in today’s economy, finding and retaining the best employees is vital. This is especially challenging for small businesses and nonprofit organizations who have to compete with larger businesses, and larger budgets, for top talent.

However, offering a high salary isn’t the only way to compete with larger employers—benefits play a large role in employee retention. If you offer employees benefits that are personalized to their needs, you’ll in turn lower your employee turnover rate.

In this article, we’ll go over why employee turnover matters, how it can hurt your organization, and strategies to prevent it.

Why does employee turnover matter?

According to the Bureau of Labor Statistics, the number of U.S. employees voluntarily leaving their jobs has gone up in the last year, especially in industries like professional and business services, manufacturing, and retail. Frequent voluntary turnover rates like these have a negative impact on your organization in more ways than one.

Learn how to calculate employee retention rates

Employee turnover lowers morale

One of the first changes you’ll notice after losing an employee is a decrease in employee morale. As more employees leave, the ones remaining may have lost a valuable work friend, which matters more than you might think.

According to a study by Office Vibe, a whopping 70% of employees say that having a friend at work is the most crucial element to a happy work life. What’s more, 50% of employees with a best friend at work reported feeling a stronger connection to their organization.

So if one employee leaves, the culture and commitment your remaining employees have to the organization and their role in it can be severely affected.

Employee turnover decreases productivity

Losing employees also leads to decreased productivity, quite simply because you have less team members to get work done. As the remaining employees get overwhelmed with more work to help make up the difference, their stress levels rise, making them far less likely to perform at their best.

This kind of hit in your employees’ productivity is also a hit to your organization financially. A HubSpot report found that lost productivity costs U.S. businesses a shocking $1.8 trillion dollars every year.

The cost of employee turnover is high

Perhaps the biggest concern employee turnover presents is its financial costs from recruiting and training new employees to replace the ones you’ve lost. While the exact costs of employee turnover vary, there’s no question it’s something employers need to manage.

Some studies predict that every time a business replaces a salaried employee, it costs 6 to 9 months’ salary on average. For a manager making $60,000 a year, that's $30,000 to $45,000 in recruiting and training expenses. However, turnover seems to vary by wage and role of employee.

For example, Built In reports the average costs to replace an employee are:

  • $1,500 for hourly employees
  • 100 to 150% of an employee’s salary for technical positions
  • Up to 213% of an employee’s salary for C-suite positions

Improving benefits is one way to reduce employee turnover. Learn how to offer more personalized health benefits in our Comprehensive Guide to the Small Business HRA

So what is the real cost of losing an employee?

In an article on employee retention, Josh Bersin of Bersin by Deloitte breaks down key factors that contribute to the costs of losing an employee.

These factors include:

  • Recruiting costs: The cost of hiring a new employee including the advertising, interviewing, screening, and hiring.
  • Onboarding costs: The cost of onboarding a new person, including training and management time.
  • Lost productivity: It may take a new employee one to two years to reach the productivity of an existing person.
  • Lost engagement: Other employees who see high turnover tend to disengage and lose productivity.
  • Customer service and errors: New employees take longer to complete their work and are often less adept at solving problems.
  • Training costs: Over two to three years, a business likely invests 10% to 20% of an employee's salary or more in training.
  • Cultural impact: Whenever someone leaves, others take time to ask why.

One of the reasons the real cost of employee turnover is such a mystery is because most organizations don't have systems in place to track exit costs, including recruiting, interviewing, hiring, orientation and training, lost productivity, potential customer dissatisfaction, reduced or lost business, administrative costs, and lost expertise. This takes collaboration among departments (HR, finance, operations, etc.), tools to measure these costs, and reporting mechanisms.

Get tips for setting up your first HR department in four simple steps

Best practices on employee retention

So, what can you do about employee retention?

Some employee retention tips include:

Download our employee retention guide to learn how to keep your employees without breaking your budget

Conclusion

When an employee leaves your organization, it can be a big blow on your organization’s morale, productivity, and budget. That’s why implementing strong retention strategies from the beginning is so crucial, including offering a quality health benefit to take care of your employees.

Schedule a call with a personalized benefits advisor to see how we can help you offer health benefits on a budget

This article was originally published on June 2, 2020. It was last updated September 17, 2021.

Topics: Health Benefits, Employee Retention, Human Resources

Additional Resources

Get 11 insider tips on how small employers can retain employees.
Trying to decide which HRA is best for you? Take our quiz to find out.

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