American Employer Foundation

Why Turnover Costs Add Up Faster Than Most Realize

Turnover is rarely expensive because of one big line item. It’s expensive because of many smaller costs that compound quietly.

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Here’s where the cost actually comes from:

1. Separation & Vacancy Costs

When an employee leaves, productivity doesn’t stop cleanly.

Costs typically include:

• Lost output while the role is unfilled

• Overtime or coverage by other staff

• Administrative time to process the departure

Even short vacancies create real financial drag.

 

2. Recruiting & Hiring Costs

Replacing an employee consumes internal resources long before a new hire starts.

This often includes:

• Recruiting and advertising efforts

• Interviewing and screening time

• Onboarding and administrative work

Even when no outside recruiter is used, internal time still has a cost.

 

3. Ramp-Up & Productivity Loss

This is the largest and most overlooked cost of turnover.

New hires:

• Take months to reach full productivity

• Require supervision and training

• Make more errors early on

Most roles take 3–9 months to fully ramp, depending on complexity.

 

4. Institutional Knowledge Loss

Some losses never hit the general ledger.

When employees leave, organizations lose:

• Process familiarity

• Relationship continuity

• Experience that isn’t documented

These losses show up as delays, rework, and operational friction.

 

Why 30% of Salary Is a Common Benchmark

When these factors are combined, many organizations use ~30% of annual salary as a conservative planning estimate for turnover cost.

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This is not a guarantee or a promise — it’s a widely accepted composite benchmark used to understand scale and impact.

Turnover is expensive not because it’s dramatic — but because it’s distributed, persistent, and rarely measured.