Replacing employees can cost 3x their salary — here’s what you’re missing about high turnover rates
By Zach Links●6 min. read●May 8, 2025
High employee turnover isn't just an HR headache — it's a major financial drain on your organization.
Every employee departure represents lost investments in recruitment, onboarding, and training. And the costs extend far beyond the obvious. Employee churn affects everything from individual team productivity to the overall company culture.
For HR and benefits leaders, understanding the true cost of this revolving door is crucial. With concrete numbers, you can secure executive buy-in for the programs and incentives you need to retain your top talent.
Let's explore why high performers leave companies, the hidden costs that affect your bottom line, and actionable strategies you can use to reduce churn and boost retention.
What qualifies as high employee turnover?
What qualifies as a high employee turnover rate varies by industry, role, and company size. Knowing where your organization stands relative to these benchmarks is the first step in addressing turnover challenges.
According to the U.S. Bureau of Labor Statistics, the median employee tenure in January 2024 was 3.9 years — the lowest since 2002. This indicates a more fluid workforce overall, with employees switching jobs more frequently. But some sectors saw more employee turnover than others.
Manufacturing workers had more than twice the median tenure (4.9 years) of those in leisure and hospitality (2.1 years). Similarly, mining industry workers had a median tenure of 5.7 years, while food service workers had a median of just 2.0 years.
Company size also plays a role in turnover patterns. According to LinkedIn data, small and midsize businesses (SMBs) have a higher turnover rate of 12.0% (compared to a 10.6% average overall), while larger enterprises have more stability with a 9.9% turnover rate. This disparity may reflect stronger career advancement opportunities and benefits packages available at larger organizations.
If your employee turnover rate consistently exceeds the average for your industry and company size, you're likely experiencing high employee turnover.
Why high performers leave
Some high-performing employees leave for one simple reason: better compensation. But high-performers’ departures frequently stem from a mix of other factors, including a sense of disconnect from their company’s goals, plateaus in learning and development opportunities, and a lack of recognition.
Ambiguous goals and lack of purpose
Only 30% of employees feel connected to their company's mission, according to Gallup. Having a disconnect between daily work and meaningful purpose makes it difficult to retain top talent. Plus, role clarity has reached crisis levels — Gallup found that less than half of U.S. employees know what's expected of them at work.
Without clear direction, even the most talented employees struggle to channel their efforts effectively. This ambiguity creates frustration and a sense of wasted potential that can lead to a high turnover rate.
Few learning opportunities
High performers thrive on growth and development opportunities. When learning plateaus and advancement paths disappear, talented employees may look elsewhere.
Poor management
When supervisors fail to provide constructive feedback, employees are more likely to leave their companies. This management gap may appear gradually — beginning with reduced engagement before progressing to active job searching.
Lack of employee recognition
Top contributors want acknowledgement for their outsized impact. Without meaningful employee recognition, high-performing employees might question whether their efforts are valued or even noticed.
4 ways high employee turnover affects your business
High employee turnover impacts more than just your recruitment budget. The effects ripple through the organization, touching everything from financial performance to team dynamics.
The cost of replacing an employee is up to 2x their original salary — and that’s a conservative estimate. Here’s why many employers peg the real cost of hiring a new employee at 3x to 4x the position’s salary:
1. Budgets
The financial impact of a high turnover rate goes beyond initial hiring expenses.
Let’s say you’re replacing a manager earning $100,000 in base salary. The job market may have advanced since their initial hiring, pushing competitive offers 20% higher. That means your new hire might command a $120,000 salary with a proportionally increased benefits load of $36,000, up from $30,000.
Then come the potential recruiting costs: Recruiter fees ($24,000, or ~20% of base salary), job board postings (~$1,000), interview travel/meals (~$2,000), and possible relocation assistance (~$5,000). Now, you could be looking at another $32,000 before your new hire even starts.
That’s $58,000 in extra expenses — more than half the original salary — just to get someone new in the door. And that’s before factoring in all the soft costs involved, such as a hit to employee morale.
2. Productivity
Productivity suffers at multiple stages during the turnover cycle. When employees prepare to leave, their engagement and output typically decline — often weeks or months before their actual exit.
The vacancy period creates more challenges as remaining team members struggle to absorb extra responsibilities, which can impact their morale. The workload redistribution leads to bottlenecks, missed deadlines, and quality issues. Even after new hires join, they need time to ramp up, so team output remains compromised despite having a full headcount.
3. Institutional knowledge
Every departing employee takes valuable institutional knowledge with them. This includes unwritten processes, client relationship insights, project history, and specialized expertise they've built up over time.
Knowledge loss becomes particularly damaging when you lose long-tenured employees who understand complex interdependencies across departments. Their departure can disrupt established workflows and decision-making processes, creating unexpected disruptions long after the employee leaves.
4. Company culture and morale
High turnover fosters turnover contagion, a spreading negativity that can affect even your most engaged employees. When team members regularly see colleagues leave, they naturally question whether they should also explore new opportunities.
Remaining employees face additional burdens during high-turnover periods as well. They have to forge new working relationships, adjust to changing team dynamics, and shoulder heavier workloads. These pressures can lead to increased stress and burnout risk, and create a cycle where turnover drives even more turnover.
How to reduce churn and retain your best people
Addressing turnover requires a multifaceted approach to make employees feel valued and engaged.
Employee rewards and incentives
Strategic employee incentives can help reduce turnover when you use them to show appreciation for employee contributions. A little bit of recognition goes a long way. Companies Forbes rated highly for having a “recognition-rich culture” also had a 31% lower voluntary turnover.
Monetary rewards drive immediate impact, especially when tied to specific achievements. Thoughtful incentives like gift cards provide immediate, positive reinforcement when given right after exceptional work, creating a strong connection between performance and reward.
Pair monetary incentives with public acknowledgement to amplify your recognition strategy. Create multiple recognition channels — from Slack shoutouts to team celebrations — that showcase employee achievements alongside tangible rewards. This strengthens the emotional connection between your workforce and your org while providing concrete value they can appreciate.
Company culture improvements
Creating a culture of transparency and open communication helps build a culture of trust. When employees understand the organization's direction and challenges, they feel more invested in its success.
A few tactics can help encourage transparency and create a more positive work environment:
Regular town halls
Honest updates about company performance
Clear explanations of strategic decisions
As for how to lead communication to your team, Mark Whittle, Vice President of Research & Advisory with Gartner's HR practice, advises HR leaders to approach communication in a way that inspires change. Define your company’s core values and solicit employee feedback to get their buy-in. This clarity reduces uncertainty and helps employees see their place in your organization’s broader vision.
Positive management techniques
Research has shown that direct managers account for 70% of the variance in employee engagement. In other words, your company's managers have a big say in whether employees stick around or start job hunting.
Regular one-on-one meetings provide essential opportunities for checking in on employee wellbeing, addressing concerns before they escalate, and providing timely feedback. These consistent touchpoints help employees feel seen.
HR teams can create supportive resources for managers that encourage this practice:
Structured discussion guides
Manager training on effective conversation techniques
Clear guidelines on meeting frequency
Key takeaways
The true impact of losing talented team members touches every aspect of an organization, from productivity and team morale to institutional knowledge and company culture. High performers don't just leave for better pay — they depart when they feel disconnected from the company's mission, lack clear role expectations, or see limited opportunities for growth.
Companies must invest in creating a culture of transparency, meaningful recognition, and career growth to drive employee retention. This includes providing clear communication, building strategic rewards programs, and ensuring managers are equipped to engage their teams effectively.
The goal is not just to keep employees from leaving, but also to create a workplace where top performers genuinely want to stay and grow.
FAQs
Updated May 8, 2025
