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What’s the True Cost of Employee Turnover to Your Business?

Imagine training an employee for six months only to watch them put in their two weeks’ notice in the seventh. Frustrating, right? To make matters worse, their resignation starts a chain reaction where other employees do the same. This cycle happens when you don’t monitor and manage employee turnover.

Employee turnover refers to the number of employees leaving an organization within a specific time frame. 

There are four types of employee turnover: voluntary, involuntary, retirement, and internal transfers. 

While the other types are still manageable, voluntary turnover occurs suddenly. Its impact is far-reaching: high employee turnover lowers morale, revenue, and productivity, disrupts organizational stability, and often indicates poor management. 

The most significant voluntary turnover of modern times took place in 2021—the Great Resignation. 

Low pay, no career development opportunities, and a lack of flexible work structure post-pandemic pushed millions of Americans to quit their jobs, and the trend continued in 2022. 

The Great Resignation peaked between November 2021 and April 2022, when over 4.5 million people left their jobs every month. This exodus left companies worried about their bottom line and pushed them to innovate new strategies to attract and retain talent. 

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The Real Cost of Employee Turnover 

Any employer understands this intuitively, and labor statistics agree: Employee turnover is expensive. Retaining an existing, well-trained employee who knows how things work costs far less than hiring and re-training new employees.

But how do you calculate the exact employee turnover costs? Huffington Post’s Jack Altman devised a formula which goes like this: 

Employee Turnover = (Hiring Costs + Onboarding Costs + Development Costs + Unfilled Time) X (Number of Employees X Annual Turnover Percentage) 

For example, let’s say your company has 50 employees with an annual turnover rate of 20%. The cost of the hiring process, onboarding, training, and lost productivity amounts to $100,000. 

In that case, the cost of employee turnover would be = $100,000 X 50 X 20% or $1,000,000. 

To simplify the calculation, only quantifiable costs are included in this formula, such as expenses on new hiring, employee onboarding, training and development, and unfilled time between an employee’s departure and the new employee’s joining. 

According to Gallup’s research, replacing an employee is half to two times the employee’s annual salary. With labor costs skyrocketing, this number only keeps increasing

However, the true cost of employee turnover goes beyond monetary loss. It also includes intangible costs you cannot measure in numbers. 

Direct and indirect costs associated with turnover

We can divide the cost of employee turnover into two major heads: direct costs and indirect costs.  

Direct costs 

Direct costs are those that you can calculate in numbers, such as:

  • Recruitment cost: This includes the expense of time and money in publishing ads, scheduling interviews with potential candidates, shortlisting, and admin work
  • Training costs: This is the expense that goes toward the training and development of a new hire so that they fit well into your ecosystem 

Indirect/non-monetary costs 

These costs aren’t numerically palpable but have a lasting effect on company culture, such as: 

  • Low employee morale: Unexpected changes in the team structure often lead to low employee engagement and morale, increasing the risk of more people leaving the workforce 
  • Productivity loss: Your team loses productivity in the process of finding, onboarding, and training the replacement 

This is why more and more companies are becoming sensitive to employee turnover and implementing employee retention programs that increase job satisfaction and commitment among their workforce. 

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Causes of High Employee Turnover 

There are various factors to blame for high employee turnover—at both an individual and organizational level: 

  • Poor compensation and pay raise: When companies fail to offer adequate compensation and pay raises to suit the employee’s skill sets, responsibilities, and cost of living, it prompts the workforce to jump ships
  • Lack of employee benefits: Not providing essential benefits such as health insurance, retirement benefits, childcare, bonuses, flexible work, and opportunities for personal development is a big reason behind high employee turnover
  • Low job satisfaction: Without a sound pay package and perks, employees lose motivation, and job satisfaction and loyalty fly out the window. They become ‘quiet quitters’, only putting the bare minimum effort to retain their jobs and switching companies the moment they find a better opportunity
  • No work–life balance: Lack of a structured work schedule affects the employee’s work-life balance. Long work hours leave them little time for family or pursuing other interests. A setup like this pushes team members to find escape routes 
  • Toxic leadership and company culture: Leaders who micromanage, lack empathy, and fail to recognize the good work of their team members create a challenging work environment, pushing the best talent to quit 
  • Lack of growth: Opportunities for upskilling and performance-based promotions boost employee satisfaction and promote loyalty. Without these, employees feel stuck and undervalued and leave the workplace in search of more fulfilling roles 
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Strategies to Reduce Employee Turnover 

If your business struggles to retain employees, it’s time to dig deeper and do things differently.

As a business owner or an HR manager, you must create a workspace where employees are well-compensated, feel valued, and get ample opportunities for personal and professional growth so they don’t feel the need to leave. 

While combating involuntary turnover may be challenging, follow these strategies for creating a thriving work culture and reducing voluntary turnover:

1. Refresh onboarding processes 

The same old pre-formatted emails and boring handbooks are enough to put your employees to sleep (more so if they’re Gen Z). You need to spruce things up for an engaging employee experience from the beginning. 

Send personalized emails, offer a journey mapping blueprint, schedule one-on-ones, and ensure a smooth onboarding. Revamp your onboarding program with interactive sessions, ice-breakers, mentorship programs, and clear goal-setting for better employee retention rates. 

As for documentation, you can take inspiration from employee handbook templates to reshape your onboarding processes.

Convey vital messages in a not-so-boring format with ClickUp’s Employee Handbook Template 

For example, ClickUp’s Employee Handbook Template lets you communicate information about your company’s background, code of conduct, communication policies, and more in a customized way to reflect your unique employer brand. 

You even get to add graphics, emojis, and GIFs to break up the long walls of policy text so employees feel excited to go through it. 

2. Improve employee development and training programs

Instead of cookie-cutter training and development programs, conduct a thorough needs assessment to identify employee skill gaps. Shortlist common issues in specific departments and try to address them through your training sessions. 

45% of your content marketing team members struggle with technical SEO. To address this, you can collaborate with industry experts and create personalized training modules on technical SEO. 

You also need powerful employee training software so employees can track their progress, access the program from a device of their choice, and provide feedback on the training. And that’s it—you’ve built a program that adds value to your team’s skill set. 

ClickUp Docs
ClickUp Docs allows you to write, edit, and collaborate in real time and add comments to communicate with team members

Quick tip: Use ClickUp Docs to build a centralized institutional knowledge base or learning wiki where employees can access training materials, tutorials, and best practices, fostering a culture of continuous learning.

Create a dedicated Space or Folder in ClickUp Docs for your training materials. Within this Space/Folder, you can create individual Docs for different topics, modules, or categories of your training program. This hierarchical structure will help you organize your content logically.

ClickUp Docs also supports rich text formatting, allowing you to present your training content in an engaging and visually appealing way. Use headings, bullet points, code blocks, and other formatting options to structure your content effectively. Additionally, you can embed images, videos, and other multimedia elements to enhance the learning experience.

With full-text search, employees can easily find specific information or topics within your training materials. You can also control access permissions to ensure that only authorized individuals can view or edit the training content.

3. Recognize employees 

Recognition and rewards, such as increasing an employee’s salary, encourage employees to do better, make them feel appreciated, and boost loyalty. 

You can incentivize your workforce in different ways, including: 

  • Financial incentives in the form of pay raises, bonuses, profit sharing, stocks, gift cards, travel vouchers, learning stipends, and tuition reimbursement 
  • Non-financial incentives such as training programs for professional development, employee reward programs to celebrate achievements, and additional time off

Your employee recognition system should perfectly balance monetary and non-monetary benefits. These aspects are necessary for increasing your workforce’s overall satisfaction and morale.

4. Identify roadblocks early 

Roadblocks are normal. But when you let them pile up, they can disrupt your workflow. 

Use an employee monitoring system to understand the challenges your employees are facing. These could concern skills, resources, timelines, or anything else. When you identify these roadblocks early, you can arm your employees with the necessary resources to tackle them effectively. 

For example, if a new employee struggles to deliver projects on time, assign a project partner to teach them the ropes and help them be more efficient. 

ClickUp’s Workload view
Identify capacities and allocate resources efficiently to prevent over and under-utilization of resources with ClickUp’s Workload view

With ClickUp’s Workload view and the Pulse ClickApp, you can monitor who is working on which tasks, visualize the amount of work each team member is assigned during a specific time period, and compare each person’s workload with the capacity set for them.

This can help you gather real-time feedback and sentiment from your team, allowing you to identify and address issues before they escalate.

5. Offer flexible work 

A McKinsey study states that 87% of employees take up remote work when given an opportunity. In another McKinsey poll, workplace flexibility is the top reason employees are returning to the workplace. 

It’s safe to say that offering flexible work arrangements will help you retain and attract new employees. 

You can allow employees to work fully remotely or offer hybrid setups to combine the best of both worlds. Prioritize employees’ overall well-being and satisfaction and let them choose a work mode that maximizes their productivity. 

And if you’re worried about inefficient or ineffective remote collaboration, try ClickUp’s Chat view.

ClickUp Chat
Bring team communication under one roof with ClickUp Chat to share updates, link resources, and seamlessly collaborate

Chat View enables remote teams to communicate in real time, fostering a sense of connectedness and immediacy through instant messaging, comments, and @mentions. 

The best part? All conversations within Chat View are task-centric. This ensures that all relevant discussions, decisions, and information are documented and accessible within the task or project scope.

Plus, you can share task-related files within the chat threads, streamlining the process of sharing work, providing feedback, and making revisions without needing external tools.

6. Set up a feedback process 

Constructive feedback on performance helps employees move in the right direction—it makes them aware of what they are doing right and what needs improvement. A Workleap survey says 83% of employees prefer to receive feedback, be it positive or negative.

Performance review templates can help you establish a transparent feedback system at your workplace and promote your employees’ professional development. 

Assess employee performance over a specific period with ClickUp’s Performance Review Template

For example, ClickUp’s Performance Review Template allows self-evaluation and collects reviews from peers and higher-ups. Customize this template and conduct quarterly, bi-annual, or annual reviews. 

7. Conduct exit interviews 

When an employee decides to leave, schedule an exit interview with them. After handing over the resignation letter, employees are more likely to disclose the issues they faced in your organization honestly and what prompted them to jump ships. 

Utilize this information to refine your existing systems and provide a better work environment for the remaining employees, ultimately reducing turnover.

ClickUp Forms
Leverage customizable forms on ClickUp to create polls and surveys 

Use ClickUp’s Form view to create exit interview templates, ensuring a consistent and structured approach to capturing valuable feedback. 

You can also create other polls, requests, and employee feedback surveys, track employee responses, and use the insights to make better decisions.

8. Implement employee retention strategies with a unified HR platform

Managing and deploying these strategies correctly can be challenging, especially in companies with a large workforce. 

To simplify things, you need a powerful HR management system with the tools to plan, create, and implement employee retention strategies tailored to your business or organization.  

And what can be a better option than ClickUp? 

ClickUp’s Human Resource Management Platform streamlines hiring, onboarding, training, development, and other HR processes, helping you reduce employee turnover. Let’s see how you can make the most of this software: 

  • Organize job applications and candidate details with this employee database software. Automate outreach and set custom statuses to move applications through the recruitment pipeline with little or no manual work 
ClickUp Human Resource Management
ClickUp helps you manage large numbers of job applications and related files in a structured format 
  • Divide large training modules into bite-size pieces with Tasks and embed related Docs and other resources within tasks for quick access. Employees can track their progress, collaborate with team members, and clarify queries using comments 
ClickUp Tasks
Don’t overwhelm employees with massive training materials—break them down into small trackable actions and add custom statuses as applicable with ClickUp Tasks
  • Customize the HR system to suit your needs with custom fields, statuses, checklists, and reminders 
ClickUp’s HR platform
Set up custom fields and tailor ClickUp’s HR platform to your unique business needs 
  • Set an easy-to-understand order of operations for hiring, onboarding, and training with Dependencies 
ClickUp Tasks
When your task depends on other tasks, use Dependencies on ClickUp to mark tasks as Waiting on, Blocking, or Linked
  • Keep a tab on employee engagement, performance, and workload with customizable Dashboards, generate reports in real-time, and identify potential bottlenecks early on 
ClickUp Reports
ClickUp generates real-time reports to help you make data-backed decisions 
  • Sync your Google, Outlook, Zoom, or iCal calendars with ClickUp, connect them to your Tasks, and manage your schedule effectively. Never miss an interview, one-on-one, or team meeting ever again
ClickUp Integration
ClickUp integrates with your choice of calendar tool and keeps you on top of your schedule 

In addition, ClickUp’s employee management software offers ready-to-use, customizable HR Templates. Human resources managers can use these to speed up their daily workflows. 

Identify areas for improvement, define roadblocks and their root causes, list down solutions, track performance metrics, and manage project timelines with ClickUp’s Corrective Action HR Template

For instance, when a project doesn’t go according to your plans, use the Corrective Action HR Template to understand what went wrong and devise a plan to fix it. 

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The Role of Health Insurance and Employee Benefits

It’s not enough to make work life easier for your employees. You must also ensure they have everything they need to maintain productivity. 

Employees appreciate a comprehensive family health insurance package amid the cost-of-living crisis and medical inflation. In addition to the usual coverage, offer a plan that includes mental health issues, eye insurance, and dental insurance. 

For small organizations struggling to cope with high medical insurance rates, health reimbursement arrangements (HRA) can be a viable alternative. It allows you to reimburse the employee’s qualifying medical expenses tax-free. 

Another option is a taxable health stipend, which allows you to extend medical coverage to international employees and independent contractors. 

You can also offer corporate subscriptions or reimbursements for wellness programs like gym or sports club memberships. 

Adding these benefits to your employee package will add up a small amount to the total cost to the company. Still, they’ll have a lasting positive impact on your work culture, employee well-being, and retention. 

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Reducing Employee Turnover: The Way Forward 

Revenue takes the biggest hit, but the consequence of high employee turnover goes way beyond that. It affects the company’s reputation, making new talents hesitant to join your organization. The existing workforce loses morale and plans to exit, resulting in a vicious cycle. 

Leaders must go the extra mile and design employee-friendly policies and practices to prevent further exodus and maintain a happy, healthy workforce that voluntarily shows up at work. Token gestures will not cut it—your retention strategies must align with the shifting workplace norms.

As a talent management software, ClickUp allows you to plan tailored retention strategies for your organization and apply them correctly. You can manage your employees more efficiently, streamline onboarding and training, understand their expectations and challenges, and engage them with reward programs using one platform. 

Get started with ClickUp today!

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Common FAQs 

1. What are the cost implications of employee turnover?

The cost of employee turnover includes both tangible and intangible costs. Tangible costs include lost revenue and recruitment and training costs, while intangible costs refer to low employee morale, lost productivity, and poor company reputation. 

2. How do you measure the cost of employee turnover?

You can measure the cost of employee turnover using Jack Altman’s formula: 

Employee Turnover = (Hiring + Onboarding + Development + Unfilled Time) X (Number of Employees X Annual Turnover Percentage) 

3. What are the costs of labor turnover?

Labor turnover costs include a nosedive in the company’s bottom line, low productivity, diminishing team morale, and difficulty attracting new talent. 

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