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5 hidden costs of employee turnover


The cost of employee turnover goes farther than many people realize.

There’s the direct cost of replacing that employee, which can run into the thousands of dollars. But there can be other, indirect costs to employee turnover.

Some of these costs can impact your business right away, while others have a more long-term negative effect.

Here are five hidden costs to watch out for when employees leave your organization and steps you can take to avoid or reduce these losses.

1. Turnover can damage your employer brand

All organizations must deal with turnover. The way they manage it makes a big difference in how employees, partners and customers perceive it.

Frequent or poorly managed turnover can stress employees and erode relationships with customers and partners. Then, a cascade of dissatisfaction can increase turnover.

It can also brand your company as dysfunctional. That can reduce the number of candidates you have for the positions you need to fill, increase your time to fill jobs and increase your cost per hire.

This is a worst-case scenario, and it doesn’t happen overnight. You can avoid it by understanding and managing these other costs of employee turnover.

2. You may lose valuable knowledge and relationships

Each of your employees builds knowledge over time that’s unique to them and helps the company.

For example, a sales team that loses a key player also loses the detailed knowledge that employee had about:

  • Customers’ needs
  • Budgets
  • Contact preferences

If those customers feel your team’s service decline after that employee leaves, you may lose their business.

In a manufacturing plant, a senior line worker leaving may mean losing knowledge of how your machinery operates when it needs maintenance or repairs. That knowledge loss can lead to costly production shutdowns and emergency repairs if equipment breaks.

To avoid this hidden cost or reduce its impact, there are several steps you can take:

  1. Develop and follow a succession plan for your team or department.
  2. Make time for junior workers to shadow senior employees to pick up on their nuanced knowledge.
  3. Prioritize information sharing, so that employees are “cross-trained” in other team members’ roles.

By building a culture of knowledge sharing and planning for knowledge transfer, you can reduce the likelihood of turnover-related information losses.

3. Team productivity can take a dive

Often when one person leaves a team, the team is in effect down two people for days, weeks or even months:

  • The departed employee
  • The person responsible for finding and training a replacement

Until the position is filled, the manager must focus on finding the right person. Once a new hire is on board, the manager or a top-performing team member needs to devote time to training the new employee.

The need to focus on hiring and training can impact the whole team as they pick up the former employee’s work plus any work the training manager no longer has time for. When team members have too much on their to-do lists, their engagement level and their effectiveness can suffer.

It may not be possible to completely avoid a drop in team productivity after an employee leaves. However, there are things you can do to manage and reduce the impact.

1. Resist the urge to put a body in the position as quickly as possible.

A bad hire can be extremely costly, because it often leads to more turnover and lost productivity.

2. Determine how management can support the team until a qualified candidate can be hired.

If the position is purely tactical, it may be wise to bring in a temp until you can make the right hire. Otherwise, you may have to divide up the work among the team.

3. Talk with the team about how to redistribute those responsibilities until you make a new hire.

Emphasize that you want to find someone who’s a good fit for the role and the team, and that may take time.

By managing the team’s expectations and getting their input on the division of extra work, you can reduce the sense of overwhelm that your team might otherwise feel.

4. Employee development can stall out

When a team suffers from frequent turnover, there can be another opportunity cost: development.

Managers focused on filling positions and training new hires may not have the bandwidth to also keep up with succession planning, cross-training and employee development.

Even if the managers do have time to focus on hiring and developing existing workers, team members may be too busy with extra responsibilities to follow a development plan. Over time, this can feed a negative cycle, in which the team’s development and performance lags, which leads to more turnover.

To avoid getting stuck in this costly loop, make fixing your turnover issue your top priority. Trying to move a team forward with constant turnover is like trying to sail a leaking ship. Until you plug the leak, you won’t get anywhere.

To “plug the leak,” you must understand what’s causing your turnover problem:

  • Is your pay competitive?
  • Do employees feel supported and engaged?
  • Is it a cultural issue?

One effective way to stem turnover problems is to gather information from your people. Exit interviews for all voluntary separations can help you understand why they left. Climate surveys can show you what your employees think of the organization right now.

However, if you conduct climate surveys, you must be willing to implement changes based on the results. Asking for employee input and then not acting on it can backfire and lead to more turnover.

Once you take steps to cut turnover, you should be able to focus more on employee development.

5. Turnover can disrupt team dynamics

Even a single employee departure can affect the way your team works together. Having a knowledge-sharing plan in place and managing expectations for productivity and development during hiring searches can help.

It’s also important to monitor the way an open spot affects team members individually. Top performers are often impacted the most by turnover, because they’re so strongly motivated by teamwork and shared goals.

They may find themselves stressed or discouraged by the departure of a teammate. Other employees may complain about the extra work they’re taking on, or the uncertainty of when the open position will be filled.

To counteract changes in your team’s attitude, make sure your top performers know you appreciate their work. And manage complainers so their venting doesn’t create a contagious culture of negativity that can lead to more turnover.

By managing expectations, keeping communication open and supporting your team, you can minimize hidden cost of employee turnover and keep your people on track to reach their goals, even when you’re a team member short.

Do you want more insights on reducing turnover and increasing employee engagement? Download our complimentary e-book, How to develop a top-notch workforce that will accelerate your business.