Resource description: We explore the cost of employee turnover, including direct expenses, hidden productivity losses, and a simple formula you can use to estimate your total turnover costs.
Preventable employee turnover costs U.S. organizations an estimated $1 trillion each year. From recruiting and onboarding to training, equipment, lost productivity, and team disruption, the true cost of replacing an employee is often far greater than most organizations realize. This article breaks down those costs and explains how employers can start reducing turnover before it gets more expensive.
It’s the circle of life, or at least corporate life. You hire someone. They work. They quit. And on the cycle goes.
But every resignation creates a chain of costs, from recruiting and onboarding to the added strain on remaining employees.
In this article, we break down the real cost of employee turnover, including direct versus indirect costs, how much you can expect to pay to replace an employee, and a simple formula you can use to estimate your total turnover costs. We’ll also cover practical ways to reduce turnover, helping you lower costs by hiring stronger-fit candidates and developing the employees you already have.
Why the cost of employee turnover is higher than most companies think
Turnover is expensive and time-consuming for everyone involved. Recruiters have to start their candidate searches from scratch, writing and posting new job listings, reviewing resumes, and scheduling and conducting interviews. Team members have to work extra hard to match their team’s previous productivity levels, and managers have to interview and onboard new hires.
Phew.
All of these time- and cost-intensive items are part and parcel of the total cost of employee turnover. However, there are different kinds of turnover: voluntary and involuntary. The distinction matters when you’re trying to quantify the total cost of turnover for your organization.
Voluntary vs involuntary turnover
Some turnover is voluntary, some is involuntary. So, what’s the difference?
Voluntary turnover is when an employee chooses to leave. Either they quit, they take another job, or they retire. Something to that effect. This kind of turnover is also known as preventable turnover, and it’s what we’ll focus on calculating in this blog.
Involuntary turnover is when you or your company initiates the separation. This may look like layoffs, firings, role eliminations, restructuring, performance-related dismissals, and so on and so forth.
The distinction comes down to whether an employee wants to leave or you want them to leave. Voluntary turnover, aka preventable turnover, is the type of turnover that costs U.S. organizations a staggering $1 trillion a year. However, it’s also the type of turnover you can actively work to address with the right employee retention strategies.
Direct vs indirect costs: a two-part framework
Voluntary turnover accounts for 42% of all turnover. Gallup estimates the cost to replace these employees at one-half to two times the employee’s annual salary.
What goes into that number? Both direct and indirect costs. In other words, both the costs you can easily quantify (direct) and those you cannot (indirect).
Replacing an employee costs up to two times the employee’s annual salary.
— Gallup
Direct costs of employee turnover
Direct costs of turnover are line items on your budget, bills with a concrete dollar amount attached. Direct costs include things like:
Recruiter/recruiting firm fees
Onboarding costs
Work equipment, administrative fees, etc.
Let’s take a closer look at each.
Recruiting and hiring fees
When replacing a candidate, you’ll first have to decide whether you want to hire a new candidate yourself or ask an agency to handle the search for you. Keep in mind that headhunting agencies typically charge between 20% to 30% of a new hire’s first-year salary — that’s at least $12,000 for a $60,000 role.
Then there’s the time factor. Both your recruiter’s time and your hiring manager’s time. You can calculate this cost by multiplying the number of hours your recruiter and hiring manager spend reviewing resumes and interviewing candidates by their respective hourly rates.
So, if we assume a salary between $30-$60/hr (average of $45/hr) for both your recruiter and your hiring manager, and they each spend 20 hours hiring someone (40 hours total), that’s $1,800 in labor fees ($45 x 40) for each new hire.
Then, there are additional direct recruiting costs, such as:
Pre-hire assessments ($20 to $1,000+/assessment. Note: Some pre-hire assessments, like Wonderlic Select, offer unlimited tests per job opening, which can significantly lower this cost.)
Background checks ($30 to $150/candidate)
Hiring software, including ATS and resume-reviewing tools ($50 to $300/month)
Some fees are smaller than others; some are bigger, but they all add up.
Administrative, training, equipment, and software
Once a candidate accepts an offer, the onboarding process adds its own set of costs.
Paperwork, setting up payroll, and HR administration may cost $100 to $500 per hire in labor hours.
Work equipment can add another $500 to $2,500, especially if the employee needs a new laptop, monitor, headset, phone, or remote-work shipment.
Software licenses for the new employee may run another $50 to $300+ per month.
Compliance training, benefits enrollment, and role-specific training can add several hundred more dollars.
Once you factor in manager and peer training time, these miscellaneous admin and equipment fees can easily reach $1,500 to $6,000+ per hire.
Offboarding costs
Whether it’s your HR team conducting exit interviews, IT processing the resignation by revoking access and wiping laptops, or finance updating payroll, offboarding takes time. A lot of it. The costs in labor won’t be your highest direct cost, but it can be expensive. Add another $500 to $1,000 in direct costs for this category.
Indirect and hidden costs of employee turnover
Indirect turnover costs are the intangibles, things like lost productivity and workplace disruption. They’re also where things can get much more expensive. Unfortunately, indirect costs are also tougher to quantify. However, we can still use informed estimates.
Let’s break it down below.
Lost productivity during the vacancy gap
The average time to fill a role is 54 days, or roughly eight weeks. If you need to replace an employee with an annual salary of $60,000, the lost productivity adds up.
Here’s the simple math:
$60,000 annual salary ÷ 52 weeks = about $1,154 of output per week $1,154 × 8 weeks of lost productivity = about $9,232 in lost output
The Bureau of Labor Statistics (BLS) reports that monthly quit rates — voluntary turnover — in the early months of 2026 hovered right around 2%.
If your organization has 1,000 people, that’s 20 employees resigning each month or $184,640 in lost productivity over the course of eight weeks just from one month’s worth of resignations.
New hire ramp-up and reduced output
Then there’s lost productivity during onboarding. Ramp-up time varies widely by role and industry. Gallup estimates that effective onboarding can last 30, 90, or 150 days — even beyond the first year — depending on the role. During that time, new hires may be paid their full salary before they’re fully up to speed.
This gap is the delta, the difference between what a fully productive employee can produce versus what a new hire actually produces.
Here’s the math:
If a $60,000-per-year employee takes 12 weeks to reach full productivity and operates at roughly 50% output during that ramp-up period, the company loses $6,900 in output ($1,154 x 12 weeks x 50%).
Impact on team morale and engagement
Turnover is contagious. A major reason is burnout. SHRM’s 2026 State of the Workplace report shows that tackling stress and burnout is one of the most pressing workplace needs today, and for good reason.
If your employees have to manage unsustainable workloads over prolonged periods, they’ll be increasingly likely to burnout. And tempted to look elsewhere. Research from Gallup shows that 42% of the employees who voluntarily leave their organization say that their manager or organization could have done something to keep them from leaving, and a major factor for employee wellbeing is effectively managing workloads and stress.
Lost institutional knowledge and client relationships
Finally, there’s lost institutional knowledge that hard-earned wisdom employees gain from spending years in their roles. When employees leave, they often take that knowledge with them, and it can take months to recover that operational know-how — if it’s ever recovered at all.
In addition, many employees who quit may have built up strong relationships with clients or customers. When your clients discover their long-term, trusted contact is no longer with the business, they may be tempted to look elsewhere for business, or even follow your employee to their next workplace. While the cost of this category is difficult to quantify, it can quickly become exorbitant.
How to calculate your employee turnover cost
A simple employee turnover cost formula
To calculate the cost of voluntary turnover per employee, you can use a simple formula:
Total Voluntary Turnover Cost per Employee = Direct Turnover Costs + Indirect Turnover Costs
A more detailed equation looks like this:
Total Voluntary Turnover Cost per Employee = Direct Turnover Costs (Recruiting and Hiring fees + Miscellaneous Costs + Offboarding costs) + Indirect Costs (Lost Productivity + Ramp-up Time + Team Morale + Lost Institutional Knowledge and Client Churn)
A sample calculation of employee turnover costs
Let’s run some numbers. For a 1000-person company with a 2% monthly turnover rate (or a 24% annual turnover rate) with employees making $60,000/year, turnover costs would look as follows:
Direct costs:
Cost category
Average estimated cost per employee
Headhunting fees
Not included
Hiring costs for recruiters’ and hiring managers’ time
$1,800
Pre-hire assessments
$20 to $1000 = $510 (average)
Background checks
$30 to $150= $90 (average)
Hiring software
$50 to $300 = $175 (average)
Onboarding, equipment, software, and training
$1,500 to $6,000 = $3,750 (average)
Offboarding costs
$500 to $1,000 = $750 (average)
Estimated direct costs per employee
$7,075
Indirect costs:
Cost category
Estimated cost per employee
Lost productivity for 8 weeks ($1,154 x 8)
$9,232
Ramp-up productivity loss (12 weeks of onboarding at 50% productivity)
$6,924
Team disruption, lower morale, lost institutional knowledge, and potential customer churn
Variable / Not included
Estimated indirect costs per employee
$16,156+
Total Voluntary Turnover Costs Per Employee = Direct Costs ($7,075) + Indirect Costs ($16,156) = $23,231
To calculate monthly employee turnover costs at a 2% monthly voluntary turnover rate for a 1000-person company, you would use the following equation:
Monthly Turnover Costs = Total Turnover Cost per Employee x Number of Departing Employees
To calculate annual employee turnover costs, you can multiply the monthly cost by twelve, or you can multiply your turnover cost per employee by the number of employees who leave each year.
Assuming a 24% annual turnover rate for employees making $60,000/year, you would calculate the annual employee turnover rate as follows:
Annual Voluntary Turnover Cost = $23,231 (cost per employee) x 240 employees (# of employees who left) = $5,575,440
Employee turnover cost benchmarks by role and industry
The calculations above are meant to give you rough estimates. Some roles make more than others and are more expensive to fill. Others take longer to replace. Gallup gives some helpful benchmarks here for the cost to replace employees in different seniority levels and roles. The estimates it gives are:
200% of an employee’s annual salary to replace leaders/managers
80% for technical roles
40% for frontline roles
What about involuntary turnover?
Involuntary turnover, such as layoffs or firings, represents 58% of all employee turnover. While employers have a lot more control over the timing and scope of involuntary turnover, its costs can still add up.
Severance, for example, can range from one to two weeks of pay per year of service, which means a $60,000 employee with five years of tenure could receive roughly $5,800 to $11,500 before factoring in offboarding work, legal review, COBRA administration, and potential impacts on unemployment insurance, all of which could add a few hundred to $1,000+ more in costs.
Reduce front-end costs by hiring the right people from the start
One in three new hires leaves in their first 90 days. Worse, 50% of all typical hiring decisions fail. SHRM puts the cost of just one bad hire at $240,000.
But your hiring team doesn’t need to rely on intuition or resumes alone to make informed hiring decisions. Pre-hire assessments bring objective data to the process. Multi-measure assessments like Wonderlic Select gauge cognitive ability, personality, and motivation to reveal if a candidate can do the job, how they’ll do the job, and if they’ll enjoy the job.
Together, these factors are highly predictive of job fit and performance. They’ll give your team a data-driven lens into whether employees are likely to learn and perform and stay engaged for a long period of time, reducing the risk of repeating the hiring process and incurring the high costs of employee turnover.
Reduce back-end costs by developing the people you already have
Another leading strategy to reduce turnover is to invest in your employees’ growth and development. A survey from the American Psychological Association on psychological health and employee well-being found that 91% of employees said it was “very or somewhat important to them to have a job where they consistently have opportunities to learn. In addition, Gallup found that employees who receive recognition are 45% less likely to be disengaged over two years later.
Scalable, self-led employee development tools like Wonderlic Develop bridge the gap between scattered, one-off development initiatives and sustainable employee growth. They use multi-measure assessments to design personalized development plans for every employee. Even better, they give workers actionable steps to improve at their roles.
Fast-track Your Wonderlic Expertise
Join a hands-on workshop to deepen your understanding of Wonderlic Select and Develop. Learn how to interpret results with confidence and lead more meaningful development conversations with your employees.
The cost of employee turnover is higher than any single recruiting fee or piece of work equipment. Direct costs like hiring and admin fees are the easiest to track, but indirect costs like lost productivity, ramp-up time, and lost institutional knowledge are often what make turnover so expensive.
The good news is that voluntary turnover is preventable. Hiring the right employees from the start drastically reduces the costly chain of events in the turnover cycle, while investing in employees’ growth and development can help keep strong performers engaged while making every employee feel seen and valued.
The average cost of employee turnover is often estimated at one-half to two times the departing employee’s annual salary. Replacing a $60,000 employee can cost an estimated $23,231 before factoring in hidden costs of employee turnover, such as lost institutional knowledge, team disruption, and potential customer churn.
How do you calculate the cost of employee turnover?
To calculate the cost of employee turnover, add your direct costs and indirect turnover costs. Direct costs include recruiting, hiring, onboarding, equipment, software, and offboarding. Indirect costs include lost productivity during the vacancy period, reduced output during ramp-up, team disruption, and lost institutional knowledge.
What are the hidden costs of employee turnover?
The hidden costs of employee turnover are the expenses that don’t always appear as line items in a budget, such as lost productivity while the role is open, reduced output while the new hire ramps up, added strain on remaining employees, lost institutional knowledge, and potential client or customer disruption.
How much does it cost to replace an employee?
Replacement costs vary by role, salary, industry, and time to fill. Replacing a $60,000 employee can cost $7,075 in direct costs and $16,156 in indirect costs, for a total of $23,231 per employee. Higher-paid, specialized, technical, or leadership roles can cost significantly more to replace.
How much does employee turnover cost a company?
Employee turnover can cost a company thousands or millions per year, depending on workforce size and turnover rate. A 1,000-person company with a 2% monthly voluntary turnover rate would lose approximately 20 employees per month. At an estimated $23,231 per departure, that works out to around $464,620 per month, or more than $5.5 million per year.
Does employee turnover cost more in certain industries?
Yes. Healthcare and tech have the highest per-hire replacement costs due to specialized skills and long ramp-up times. Retail and food service have higher volume but lower per-hire costs.
What is the cost of employee turnover as a percentage of salary?
The cost of employee turnover is often estimated at 50% to 200% of the departing employee’s annual salary.
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