What is the true cost of replacing an employee and how can you reduce it?

04th June 2024

It’s no revelation to say that high employee turnover is bad for any business. It suggests low morale and shows that the workplace environment is not delivering for the people who power it.

But did you know that it can have a serious financial impact too? Replacing employees doesn’t just inconvenience companies, it actively costs them. And most employers are completely unaware of how much.

In this post, we’ll look at what that cost is and the steps you can take to avoid it. We’ll cover how much it costs to hire a new employee and why that figure can get so high. We’ll also share some tips on how to lower employee turnover, as this is the best way to reduce the cost of turnover.

What is the average cost of hiring a new employee in the UK?

Research suggests it can cost you one-and-a-half to two times the cost of an employee’s annual salary to replace them. This is higher for skilled positions that need a more involved recruitment process. However, it’s also been shown that recruiting for a position offering a £25,000 per annum salary would still cost over £30,000 depending on the sector.

Many factors will impact these costs. And some of them are completely out of your business’s control. 

A stormy job market might lead to a shorter recruiting time by delivering more candidates. But this could be offset by higher charges from recruiters. 

Similarly, if you operate in a desirable industry you may find it easier to recruit initially. But you may also attract a lot of inexperienced candidates with rose-tinted expectations. If this happens, and the role you provide doesn’t meet them, you may still suffer from high staff turnover

Whatever factors come into play for your business, one thing is likely to be true. Active recruiting incurs a large invoice – and this is only part of a new hire’s cost.

What are the hidden costs of employee turnover?

Hiring costs can be high in a range of industries. Even if you don’t outsource to a recruitment agency, you’ll be using internal staff hours to filter through applications. Then you’ll see even more lost productivity as your staff spend time interviewing and choosing a candidate.

But even after a position is filled, it continues to cost. Onboarding costs will continue for weeks – usually months – after your new staff member starts. There are training costs for the new employee while they learn the role. You’ll also lose the output and performance of the team member who is giving the training.

High staff turnover can even lower the productivity of remaining employees by reducing overall staff morale. Demoralised staff are less motivated and less productive and these feelings can easily pass across whole teams too.

Female employee clearing her desk after resigning from job role.

Why is staff retention important?

The cost of staff leaving is often higher than you think. These aren’t the only reasons that high employee turnover can damage your company though. Here are some other benefits of implementing an effective employee retention strategy.

Long-Term Productivity

As mentioned above, new staff will not be able to work as quickly or deliver to the same standard as more experienced team members. Training Industry Quarterly revealed it takes up to two years for a new employee to reach full productivity.  This means there is still a productivity deficit even when your new employee no longer needs secondary support.

Long-Term Loyalty

In 2023, 38% of employees quit within the first year of a job. This means that high staff turnover will likely just lead to an even higher rate of staff turnover. Keep staff for over a year and they’ll feel more secure, and be more loyal.

Higher Skill Level

While no one can ignore the boost that a new way of doing things can bring, it is clear that staff who have been with your company a long time will have a high skill level. They will have had access to your own training so they will have the specific skills you need. Plus they’ll be comfortable with your company policies and particular operating procedures.


This all shows that the longer you can keep staff, the better. However, this can feel like something that’s easy to say but much harder to do. So how can you break the cycle of staff leaving?

What are the three most important factors for employee retention?

As employee turnover costs can be so great, employee retention is actually a money-saving strategy. It is also one that feeds itself – as more people choose to stay, others will be inspired to stay as well.

This makes it worth spending both time and money to address staff retention. But the amount of effort needed will depend on your current situation.

If employees are leaving due to a toxic workplace environment, then convincing staff to stay will take a deep commitment to change. Even if employees are leaving for better salaries, the answer is not to just overpay for positions.

In fact there is a whole range of factors at play in employee retention strategies. But if you’re looking for pointers to get started, here are three factors often picked out as important for employee retention.

Work/life balance

The daily grind of traffic jams and crammed public transport were a fact of life ten years ago, but the pandemic woke the world to a new way of working. Remote and hybrid roles made a healthier work/life balance a reality for many workers.. And while business owners and managers have been keen to drag workers back to the office – many employees weren’t ready to give up their extra space.

Similarly, as awareness of burnout and mental health issues is growing, employees are realising they can’t risk being tied to their emails out of hours or doing endless overtime with no sight of a break.

People know there are better options out there – options that will help them stay healthy and protect their time for themselves. If your business operates in an industry where remote working is possible but you don’t offer it, you can expect a high level of employee turnover as many people choose companies who do.

Listening to what your employees need in terms of working patterns is a great way to improve employee satisfaction which rarely has higher direct costs to your company than replacing employees does.

Opportunities for advancement

A high proportion of people who apply for new jobs, do so to advance their career. Not just because it comes with more money – a desire for more responsibility, variety of tasks (or loss of tasks) and a need for higher job satisfaction can all play a part.

Creating a company culture where promotions and career development are in-built is a great way to reduce employee turnover. It will increase employee engagement and motivation as staff will feel their potential is being recognised and embraced.

It will also help you save on recruitment costs as you will be sourcing from your existing staff not from new employees – and as we explored above, new employees are also more likely to leave while existing ones have higher levels of loyalty.

Additional Support and Benefits

Obviously, if you’re offering a below-market salary you’re going to struggle with high turnover as people look to be fairly rewarded for the work they do. However, this isn’t the only compensation that will matter to a salaried employee.

Employee benefits such as health and wellbeing support, personal development and training budgets, increased annual leave and childcare options will all be taken into consideration alongside an employee’s salary. This isn’t a reason to offer valuable employees a shopping voucher instead of an annual pay increase, but don’t just expect a high salary to improve employee experience enough to reduce employee turnover.

Want to improve your employee retention?

If you’re looking to reduce employee turnover, supporting your staff is essential. If you’re not sure how this will look in your industry or need help implementing an employee support programme, speak to our trained team of occupational health therapists for the advice you need.

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