The Hidden Costs of Employee Turnover (and How Good Recruiting Helps)

Building a stellar team is no easy feat. It takes careful recruiting and smart workforce planning to bring the right talent on board and avoid the hidden costs of employee turnover. If you have ever asked what is the cost of employee turnover, think beyond posting fees and salaries. A hidden cost of employee turnover is lost productivity during handovers, but there are others too: onboarding time, training effort, and the drag on team morale. All of these add up to raise the average cost of turnover per employee more than most leaders expect.

Careful planning helps you spot gaps and grow your team in a sustainable way. “Building great teams requires deliberate planning, thorough vetting, and continuous support,” says Rebecca Taylor, Co-founder and CCO of SkillCycle. With a more thoughtful approach to hiring the right people into the right roles, you improve retention and reduce the cost of employee turnover. You also shield the business from reactive hiring and layoffs, even in tough markets.

Adopting a proactive approach to developing employees reduces the hidden cost of employee turnover as well. When growth paths are clear and learning is supported, people are more likely to advance internally. Over 80% of survey respondents who had recently changed roles indicated they moved from one employer to another, according to McKinsey, which suggests many leave to move up. Invest in internal mobility and development so the hidden costs of employee turnover do not repeat across teams.

Understanding the Hidden Costs of Turnover

Hiring isn’t a small line item in most organizations, and the total cost goes beyond your financial investment. It includes the time, effort, and resources dedicated to finding, selecting, and onboarding the ideal candidates. 

However, losing people due to poor hiring decisions can cost far more. There are many causes of employee turnover that can hurt your bottom line. “From performance issues to attrition and layoffs, the consequences of overlooking proper recruitment practices can be far more costly to your organization,” says Taylor.

Poor hiring practices can result in a team full of employees who are either not a great fit for their jobs or who can do the job but are a poor fit for the company culture. 

Some new or growing businesses may hire too many people at once without mapping out how their budgets will support these employees long term. During the pandemic, some companies “went on a spending spree or over-invested in talent,” according to Gartner. Not surprisingly, these actions resulted in layoffs. 

Of course, there are financial repercussions when your investments in hiring and training are lost. But consider also what happens when you lose the knowledge and expertise of employees who have been with your company for some time. 

Team morale can suffer, even in the employees who remain with the company, driving down employee engagement and productivity. And don’t underestimate how layoffs may negatively impact your reputation and employer brand. 

While often viewed as a means to cut costs, losing significant portions of your workforce can cost your company more than you realize. Recent layoffs are costing companies billions of dollars, yet the savings seized in the short term don’t justify the long-term negative impact on profits, according to HBR.

Factors Driving Employee Turnover

People rarely leave for one reason. Most exits come from a mix of stalled growth, workload strain, and weak manager support. When employees cannot see a clear path to advance, they start looking elsewhere. Limited flexibility and poor work–life balance add pressure, especially in hybrid teams where expectations are unclear. Pay matters too, but it is often the combination of low pay with a lack of feedback, recognition, and coaching that pushes someone to resign. Culture is a powerful driver: inconsistent values, micro-management, or tolerated bad behavior signal that staying will cost more than leaving. Finally, when remote-work options are absent or hard to access, parents, caregivers, and long-commute employees feel they have to choose between life and livelihood, which accelerates burnout and turnover.

Employee Turnover and Retention: Two Sides of the Same Coin

Turnover is not always a loss. Planned, well-managed turnover can open doors for fresh ideas, new skills, and more diverse perspectives. It can also recalibrate payroll by replacing high-cost roles with equally skilled, lower-cost talent or by promoting internal candidates who already understand the business. The key is to treat retention and turnover as a system. Keep your high performers and culture carriers through clear growth paths, feedback, and recognition. At the same time, use natural departures to bring in under-represented talent, rebalance teams, and close capability gaps. When you plan both sides, who you must keep and where you can refresh, you protect momentum and build a healthier, more resilient workforce.

7 Steps to Recruit and Retain a Well-Aligned Team

Once you understand why employee retention is important to the long-term success of your company, measures to keep your employees become necessary, not optional. 

Taking shortcuts in the hiring process or ignoring important aspects of alignment can lead to costly layoffs or elimination. Instead, carefully analyze what your organization needs to grow to build a team you can invest in and develop.

Here are seven steps to develop more thoughtful hiring and retention practices:

1. Create a Hiring Strategy

Make a comprehensive hiring plan aligned with your long-term strategy and budget, avoiding the temptation to rush hiring just to fill roles you think you need. Prioritize the immediate hiring needs that support your company’s current needs and future growth, ensuring that each role’s contributions and long-term sustainability are backed by your budget. 

2. Target the Right Talent

Your company will need a broad range of well-developed skills across its workforce as it grows. When hiring, seek to fill any skills gaps you know will help you drive progress toward organizational goals. Craft specific job postings to attract applicants who align with your organization’s needs. By narrowing your focus, you’ll receive fewer but more targeted applications, increasing the chances of finding candidates who fit well within your company in the long run.

3. Hire to Fill Critical Gaps

Consider what your organization needs for skills and knowledge when hiring, and look beyond traditional experience and credentials. Hiring for the same roles as every other company in your industry may not help differentiate you, but bringing on people who align well and fill key gaps in your capabilities will. Seek candidates who bring fresh perspectives and innovative approaches to your organization’s challenges.

4. Invest in Onboarding

Emphasize the importance of effective employee onboarding as a critical phase to welcome new hires into your company culture and provide them with a solid foundation. Offer regular check-ins, constructive feedback, and opportunities for growth and development. With a robust onboarding program, you’ll enable new employees to envision a future within your organization and increase their contributions to your company. 

5. Manage Ongoing Performance

Implement a proactive performance management system that offers continuous learning, aligns individual goals with business outcomes, and leverages data for more insightful performance evaluation. By providing ongoing feedback, regular check-ins, and coaching, you can nurture employee progress and bridge skills gaps while supporting progress toward personal and organizational goals. 

6. Foster Learning and Career Development

Make growth part of the job, not something people do after hours. Map each role to a few priority skills, then pair active goals with learning milestones and real projects where new skills can be applied. Give employees clear pathways for internal mobility, mentoring, and short rotations so they can test new responsibilities without leaving the company. Keep the rhythm simple: quarterly development plans, monthly check-ins, and visible recognition when someone applies a new skill to deliver a result. This builds confidence, speeds execution, and reduces the cost of employee turnover by turning your team into a steady pipeline of ready talent.

7. Promote a Culture of Belonging, Wellbeing and DEI

People stay where they feel respected, supported, and able to thrive. Set clear norms for collaboration, flexibility, and feedback so everyone understands how work gets done. Embed DEI into daily routines with inclusive hiring slates, equitable growth opportunities, and transparent pay practices. Treat wellbeing as a performance system: reasonable workloads, access to mental health resources, and managers trained to spot early signs of stress. Invite employee voice through regular listening and close the loop by showing what changed. Belonging is the outcome of consistent, fair practices, and it is one of the strongest safeguards against the hidden costs of employee turnover.

Leveraging People Analytics to Predict and Prevent Turnover

People analytics turns scattered signals into early warnings you can act on. Track engagement scores, manager feedback, internal mobility, PTO spikes, and exit-survey themes in one view. Look for patterns by team, tenure, role, and location. When you see a cluster of low engagement with stalled growth or rising workloads, you have a likely flight-risk group. Intervene with targeted coaching, workload resets, and clear next steps for development before resignations begin.

Invest in managers first. A large share of turnover is linked to leadership issues, so raise manager quality with simple, repeatable habits. Run short weekly check-ins, set a small number of clear goals, and connect each person to a learning milestone or mentor. Publish team-level actions after listening pulses so people see what changed. Pair this with visible growth paths and internal postings, which give employees a reason to stay and advance.

A practical setup looks like this:

What to monitor

• Engagement and pulse trends by team and manager
• Promotion, lateral move, and skill-achievement rates
• PTO, overtime, and workload signals
• Exit-survey reasons and regretted loss rate

Questions to ask

• Where are scores falling fastest and why
• Which groups have low mobility and high workload
• Which managers need coaching support right now
• What promises did we make that we have not delivered

Actions to take

• Targeted manager coaching and peer circles
• Role clarity and workload rebalance within two weeks
• Learning sprints tied to near-term opportunities
• Internal posting and career map refresh for at-risk groups

Close the loop every quarter. Share the hotspots you found, the actions you took, and the outcome on retention and performance. Over time, this listen–analyze–act rhythm reduces employee attrition, improves manager capability, and builds a culture where people see real progress.

How to Avoid Attrition and Layoffs

Businesses often resort to layoffs to reduce labor costs during economic downturns or when facing budgetary constraints. However, as much as layoffs can appear to be a quick and effective way to save money, employers and HR teams should thoroughly explore ways to avoid them. 

Through thoughtful hiring practices and retention strategies, companies can reduce layoffs and attrition and maintain a skilled and engaged workforce. “Layoffs can be a drastic and often unnecessary solution with lasting negative impacts on the business,” says Taylor.

Focus on bringing in the right people for the appropriate reasons every time you hire, and ensure your hiring follows the strategy you’ve laid out. Then offer ongoing opportunities for employees to build skills and progress forward so they feel inclined to stay and contribute where they are

Adapting Hiring and Retention for Hybrid and Ai-Driven Work

Flexible work keeps good people. Strict office rules push them away. Treat location as a tool, not a target. Success is measured by results, not time in a seat. Set a few shared hours for teamwork, then protect focus time so individuals can do deep work without constant interruptions. Write this into team agreements so everyone knows when to collaborate, when to communicate async, and how to handle urgent issues.

Design hybrid work with intent. Define which moments matter in person, such as onboarding, quarterly planning, customer workshops, and hard problems that benefit from a whiteboard. Keep everything else digital by default with clear documentation, simple check-ins, and shared dashboards. Managers should coach outcomes and remove blockers, not police presence.

Use AI to support people, not replace them. In hiring, AI can screen for minimum qualifications, tidy up scheduling, and surface diverse shortlists. Keep humans in charge of interviews and final decisions. In performance, AI in performance management can summarize feedback, flag at-risk goals, and recommend learning paths. Managers then use those insights to set context, give fair feedback, and recognize progress. This balance reduces admin work while keeping trust, fairness, and judgment in human hands.

Make the employee experience consistent across locations. Give remote and on-site people equal access to projects, growth opportunities, and recognition. Publish role expectations, promotion criteria, and learning paths so careers do not depend on proximity. Measure what matters: goal completion, customer outcomes, quality, and team health. When hiring and retention policies match these principles, you keep high performers engaged and build a culture that can adapt as work and technology evolve.

A Proactive Approach to Hiring and People Management

Once you’ve built your team, supporting and nurturing them throughout every step of the employee lifecycle helps foster their personal and professional growth. These efforts help your company perform better, and can protect you from the hidden costs of employee turnover.

“Committing to better hiring practices helps ensure every team member has been added to your team with the best likelihood of success — for them and the company,” says Taylor.

Hiring the right people and offering them development opportunities that help them achieve their professional goals shows employees you’re willing to invest in their long-term success. 

With a more proactive approach, you’ll increase their job satisfaction, engagement, and motivation and create a supportive environment that values their contributions and well-being. These all help address the common causes of employee turnover that can hurt companies in the long run.

By prioritizing thoughtful and insightful hiring practices, companies can avoid costly mistakes and foster a strong, motivated team. Book a call with our customer success team to see what you can be doing to upgrade your recruiting strategy, and reduce workforce elimination.

Cost of Employee Turnover vs Retention

Turnover is expensive. When someone leaves, you pay for recruiting, interviewing, onboarding, and the ramp-up period where productivity is lower. You also absorb the hidden costs of employee turnover such as team disruption, lost customer context, and manager time spent backfilling. All of this lifts the average cost of turnover per employee far beyond the obvious line items. By contrast, investing in retention concentrates spend on growth: learning, career paths, better tools, and manager coaching. Those investments raise output and morale while lowering the ongoing cost of employee turnover.

Think of retention as compounding value. Clear goals, internal mobility, and targeted upskilling keep people advancing, which protects delivery and reduces rework. Even small, consistent investments in recognition and well-being can prevent burnout and the hidden cost of employee turnover that shows up months later as missed deadlines or customer churn. In most cases, keeping a good employee is far cheaper and faster than hiring and ramping a new one.

Conclusion

A modern, employee-first performance system blends AI insights with human judgment. Use technology to surface signals, reduce admin, and personalize learning. Keep managers in charge of coaching, context, and decisions. Focus on skills, fair processes, and flexible work so people can do their best work wherever they are. Treat retention as a strategic investment that beats the cost of employee turnover over time. With clear goals, continuous feedback, and thoughtful use of AI, you build a resilient workforce that performs through change.

FAQ

What hidden expenses come with employee burnout?

Burnout hurts performance before a resignation happens. Hidden expenses include slower execution, more mistakes and rework, extra sick days, and lost knowledge transfer. These add to the hidden costs of employee turnover even if people have not left yet.

What are the direct and indirect costs of employee turnover?

Direct costs: advertising roles, recruiter or agency fees, interview time, background checks, equipment, and onboarding.
Indirect costs: lower productivity during ramp-up, project delays, customer dissatisfaction, and morale dips across the team. Together, they raise the true cost of employee turnover.

Which expense is the largest in involuntary turnover?

Productivity loss is usually the biggest. Projects slow, managers spend hours on documentation and backfilling, and customer work stalls. That business drag often outweighs visible hiring expenses.

Is retaining an employee more cost-effective than hiring new staff?

Yes, in most cases. Retention spending fuels growth and stability, while turnover resets the clock. Keeping a strong performer avoids the high average cost of turnover per employee and preserves hard-won customer and process context.

What are the four components associated with the cost of turnover?

Think in four buckets: sourcing (finding candidates), selection (interviews and assessments), onboarding (setup and training), and ramp-up (time until full productivity). Each bucket carries both direct and hidden costs.

What role does employee engagement play in reducing turnover costs?

Engaged employees stay longer and deliver more consistently. Clear goals, recognition, and supportive managers reduce the hidden cost of employee turnover by cutting errors, rework, and flight risk.

Why is tracking turnover important?

Tracking shows where and why people leave. When you segment by team, role, tenure, and manager, you can spot patterns early, fix root causes, forecast capacity, and prevent repeat losses.

How do you calculate the cost of turnover in plain terms?

List the obvious expenses (recruiting, interviews, onboarding) and then add the less visible ones: lost productivity during ramp-up, overtime or temporary coverage, customer impact, and rework. Add these together for a realistic estimate of the cost of employee turnover in your organization.