When budgets tighten and organizations focus on operational efficiency, retention often drops down the priority list. That's a costly mistake. Your top talent will always have a place to go. Top performers and employees in critical roles attract opportunities regardless of the job market. Your business can't afford to deprioritize retention, because the financial hit from losing these employees is far steeper than most leaders realize.
There is no guarantee an employer can fully recover the value a top performer takes with them. The cost to fill that seat extends well beyond that employee's paycheck. It includes both the direct expenses you can track on a spreadsheet and the hidden costs that quietly erode team performance, morale, and institutional knowledge.
What contributes to the surprisingly high price tag when good employees leave? Turnover costs generally fall into two categories: direct costs (recruiting, hiring, onboarding, training) and hidden costs (lost productivity, reduced morale, knowledge drain). Here is a breakdown of common costs associated with employee turnover and hiring:
Direct costs: Recruiting costs to attract new talent; Sign-on bonus for new employee, or higher salary payout as a result of negotiations or incentives (such as enhanced benefits); Onboarding and training expenses for the replacement hire; Cost of backfilling roles if hiring internally
Hidden costs: Lost productivity during the interview and vacancy period; Lost productivity as the remaining team struggles to carry the workload of the vacant position; Reduced engagement from remaining team members as morale dips from being overworked; Loss of institutional knowledge and client relationships the departing employee carried; Potential decline in product or service quality during the transition period
Here is a benchmark for turnover costs for a bedside nurse, based on the most recent NSI National Health Care Retention & RN Staffing Report. Many organizations still underestimate the full scope of these costs.
|
Metric (Bedside RN) |
Cost/Impact |
|---|---|
|
Typical Turnover Cost (per RN) |
Mid-$50,000s |
|
Common Cost Range |
$40,000 – $70,000+ |
|
Estimated Annual Hospital Loss |
$5 million – $9 million+ |
Figures vary by market, specialty, and vacancy length.
Source: NSI National Health Care Retention & RN Staffing Report
The above costs are present for all vacancies created by voluntary turnover, but amplified when trying to replace a high performer or an employee considered to have high potential (HiPo):
High performers vs. low performers: High performers are individuals who produce the majority of the company output and should be checked in on often. Low performers end up receiving more attention at times due to their less-than-ideal performance, leaving high performers to hold down the fort.
“HiPo:” High potential/early-career talent may require development as well as desire for leader relationships and mentorships to obtain the right experiences to move to the next level.
High performers and high potential employees are especially at risk for turnover, and are costly to replace, as their ability to identify and win new employment opportunities are not dependent on the forecast for the job market.
Employees leave for two types of reasons: push factors (things within the company's control, such as poor management) and pull factors (external forces the company cannot control, such as a desire for a career change). Organizations have the most leverage over push factors, which makes understanding them critical. Consistent employee feedback helps surface these issues before they drive people out the door. Here are some of the top push factors that drive employees away:
Non-competitive pay or benefits: Employees regularly reassess whether their compensation and benefits meet their needs, especially when they see what competitors offer. Employers should continually evaluate the value proposition of their total rewards package. Even when immediate salary adjustments aren't feasible, transparency about compensation philosophy and a clear path to growth can help reduce flight risk.
Poor leadership (senior levels and/or direct managers or supervisors): The saying "people don't leave bad companies, they leave bad managers" holds true in many organizations. Senior leaders set the tone and determine strategic direction, while direct managers interpret and implement those directives in an employee's immediate environment. Poor managers are often under-skilled, overworked, or disengaged themselves.
Low Engagement: Low engagement signals a break in the employee’s connection to their work, the company, and their team. Disengaged employees no longer feel energized or fulfilled by their work, believe that the work is meaningful, or feel the reward is equitable. Worse, when disengaged employees leave, remaining staff often feel destabilized and pressured to cover extra workload, which can trigger a cycle of further disengagement and additional departures.
Engagement has been shown repeatedly to have a direct impact on voluntary turnover rates. In one example, a major financial institution realized a 3% overall decrease in voluntary turnover when its overall engagement score increased seven points. For large organizations, even a small percentage decrease in turnover translates to significant cost savings.
Lack of development opportunities: This could be in both stretch assignments that prepare them for upward moves, as well as stretch assignments for ‘pro in place’ individuals who want to expand their breadth of skills or experiences, or laterally move roles.
Wellbeing: An employee may love their role and coworkers, but stress, health concerns, lack of autonomy, and an inflexible workplace will all influence the employee experience. Organizations that ignore wellbeing risk losing employees who are otherwise satisfied with their work.
Diversity: HR leaders have the opportunity to invest in (and recruit more of) diverse talent. What does your Diversity & Inclusion program say about your organization? How much investment are you putting in, and how do you think that is perceived by your diverse teams (& potential new talent)?
Feeling valued: Employees need to feel valued for their efforts. When people feel they are going above and beyond, they want to know it is seen and appreciated.
Help make work meaningful. Provide enriching assignments that allow people to work on what they care about. Bring visibility to customer needs and success. Ensure they feel valued and seen for their hard work.
Encourage working together. Provide plenty of opportunities for employees to connect with a purpose. Consider cross-functional teams now that more is done virtually. Leverage better exposure/visibility for employees who need stretch assignments, networking and more connectedness at work.
Be attentive to work-life balance. Remote work and hybrid arrangements can blur the line between working from home and living at work. Be sensitive to caregiver needs and the personal challenges employees face outside of work. Allow time to step away, provide resources for mental health, and manage for outcomes instead of processes. Flexibility consistently ranks among the top factors in retention.
Work with awareness. Disruption is the norm, and workplace conditions shift faster than annual surveys can capture. Keep talking to employees and each other. Be responsive and timely with soliciting feedback and taking action. Reducing turnover starts with truly understanding what employees are thinking, feeling, and experiencing at work. Be adaptable and agile rather than protective and perfect.
Replacing an employee typically costs between 50% and 4x their annual salary, depending on the role and experience level. For context, the average cost to replace a bedside RN is $44,375, and the average hospital loses $4.9 million per year to nurse turnover, according to the NSI National Health Care Retention & RN Staffing Report. Senior and specialized roles carry even higher replacement costs.
Start by adding up your direct costs: job posting fees, recruiter time, interview hours, onboarding expenses, and training time. Then factor in indirect costs: lost productivity while the role sits vacant, overtime paid to teammates covering the workload, and manager hours spent on the hiring process. A research-backed baseline is 33% of the departing employee's annual salary for most roles. For high performers, replacement costs can reach 1.5–2x their annual salary.
Direct costs: recruiting, job advertising, background checks, onboarding, initial training
Indirect costs: reduced team productivity, overtime or temp coverage, knowledge loss
It depends on your industry. The average turnover rate across all U.S. companies is roughly 22%, according to workforce research firm Mercer. Retail averages closer to 37%. If your rate exceeds your industry benchmark, or if departures are concentrated among high performers and critical roles, that gap signals a retention problem that carries real financial consequences.
The cost goes well beyond the departing employee's salary. Every open role creates a chain of expenses: job advertising, recruiter or HR time, interviews, onboarding, and training a replacement. While that role sits vacant, your remaining team absorbs the extra workload, which reduces productivity, strains morale, and can push other employees toward the door. When the person leaving is a high performer, the loss of institutional knowledge and relationships adds costs that are difficult to recover, regardless of how strong the next hire is.
The Perceptyx platform gives you the flexibility to develop a listening strategy that fits the needs of your organization and identifies the barriers blocking engagement. Combined with support from our analytics experts, our platform helps you surface turnover risk factors early and take targeted action to retain your best people. Get in touch to see how we can help your organization reduce turnover costs and increase engagement.