Employee retention: The real cost of losing an employee

Written by: Chase Charaba
Published on June 28, 2022.

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 that have to compete with larger businesses, and larger budgets, for top talent.

Offering a high annual salary isn’t the only way to compete with larger employers—benefits also 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.

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

Why does employee turnover matter?

According to the Bureau of Labor Statistics1, the number of U.S. employees voluntarily leaving their jobs has gone up in the last year in a trend known as the Great Resignation. This is especially evident 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.

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 Vibe2, 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 fewer 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 report3 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 cost of turnover varies, there’s no question it’s something employers need to manage.

The average cost of losing an employee can cost thousands of dollars.

Some studies4 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, some 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

So what is the real cost of losing an employee?

In an article5 on employee retention, Josh Bersin of Bersin by Deloitte breaks down key factors that contribute to the true cost of losing an employee.

These factors include:

  • Recruitment costs: The direct costs 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, resulting in indirect costs to your organization.
  • Lost engagement and impact on employee morale: Other employees who see high turnover tend to disengage and lose productivity, affecting team morale.
  • 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.
  • Lost institutional knowledge: When highly-skilled or longtime employees leave, your organization loses some institutional knowledge, or the combined skill set and experience of your business
  • 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. Calculating this amongst all employees for a total annual cost takes collaboration among departments (HR, finance, operations, etc.), tools to measure these costs, and reporting mechanisms.

Why do employees quit?

There are many reasons why an employee might leave their current role.

Some of the top reasons for employee turnover are:

  • Lack of career development opportunities
  • Lack of employee engagement
  • Poor company culture
  • Lack of or poor employee benefits and annual compensation
  • Disagreements with co-workers or management
  • No clear business goals or direction
  • Employees feel like their honest feedback or thoughts aren't considered

Employee retention strategies

So, what can you do about employee retention and reducing turnover costs? We've compiled some employee retention tips in the following sections.

Implement a health benefits program

Offering health benefits is a great way to boost employee retention. Health benefits are frequently cited as one of the most desired employee benefits. However, not all health benefits are created equal.

Traditional group health insurance is an excellent option for many organizations, but rising insurance costs are making this unaffordable for many small to midsize organizations. Additionally, employees are forced into networks that may not work for their individual needs.

A health reimbursement arrangement (HRA) is a popular option among organizations for its flexibility and lower costs. An HRA allows you to reimburse your employees for their qualifying medical expenses such as individual health insurance premiums and out-of-pocket medical expenses.

You can also offer your employees a taxable health stipend. This works similar to an HRA, but with fewer regulations and restrictions on which expenses can be reimbursed.

Offer an array of perks and benefits

In addition to health benefits, be sure to offer your employees a variety of benefits and perks to ensure their needs are being met. Providing employee benefits improves employee satisfaction, which reduces turnover.

Wellness benefits are a great place to start. Building a holistic employee wellness program helps to boost employee engagement and productivity while addressing health needs that traditional benefits don't cover.

If you want to make your wellness program more personalized, consider offering a wellness stipend. These taxable employee stipends allow you to provide a payment card or reimbursement for your employees' wellness expenses such as gym memberships, fitness classes, wearables and devices, home exercise equipment, and more.

Other benefits to consider include:

Benchmark your employee retention rates

Another way to reduce the costs of employee turnover is to benchmark your employee retention rate. By understanding how many of your employees are staying at your organization over a specific period of time, you'll be able to better work on methods to retain those likely to leave.

Use proven retention strategies, not guesswork

There are many proven ways to improve retention and reduce turnover.

Here are a few ideas:

  • Hire the right employees the first time
  • Identify the perks and benefits your employees want
  • Set clear goals and expectations for your employees
  • Offer a clear career path with opportunities for growth
    • Employees look for development opportunities in any job. If they feel stagnant in their role, they'll look for new opportunities that help them grow
  • Create and maintain a positive company culture
  • Recognize employees for their work

Don't assume your employees are happy

A mistake some organizations make is assuming their employees are happy. By fostering a high-feedback environment, you'll be able to see how employees feel about your organization. This will allow you to take action to improve areas that are lacking.

It's also a good idea to conduct stay interviews with your employees to ensure their needs and goals are being met before they decide to leave your organization.

Conduct exit interviews

Finally, when employees do decide to leave, be sure to conduct an exit interview. This will help you identify the reason your employees are leaving for other opportunities.


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

Looking to build a flexible benefits package that helps keep your employee happy? Schedule a call with a personalized benefits advisor to see how we can help you offer flexible benefits on a budget.

This blog article was originally published on June 2, 2020. It was last updated on June 28, 2022.






Originally published on June 28, 2022. Last updated June 28, 2022.


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