The challenges of employee retention

The hidden costs of losing an employee

Are you struggling to retain key talent? You aren’t alone. More than half of large companies say they are having issues keeping their most talented employees, according to Zenefits.

The employee retention problem becomes even more pressing in a tight labor market, when employees know they have abundant options and may be more enticed to keep an eye on openings.

- The problem is widespread and growing:

- Some 42 million U.S. employees, or more than 1 in 4, leave their jobs in any given year to work for another company.

- Turnover rates have been on the rise in the U.S. over the past decade.

- 31% of U.S. workers have left a company within their first six months.

- 51% of workers say they are looking for a new job or monitoring openings. Some recent studies put that number as high as 71%.

It’s no surprise, then, why 87% of HR leaders say improving employee retention is a critical priority over the next five years, according to Kronos.

Real money

Companies face significant hard costs associated with poor retention and high turnover. The estimated cost of replacing an employee, for example, can range from 20% to 200% of a lost worker’s salary, depending on experience and skills. The costs of filling any open role add up quickly: It takes valuable staff time to review resumes, arrange interviews, and identify the best fit. It takes 43 days on average to fill an open position. Then, there’s the cost of employee onboarding and training the new employee. Finally, it takes an estimated six months for new hires to get up to speed.

Hidden costs

There are also indirect costs associated with employee churn. For example, companies hate losing employees to competitors—especially when the departing worker is highly skilled.

The loss of a star employee can have negative effects on team morale and even business performance. Other employees who worked closely with a high performer are often saddled with more work until a replacement is hired for the open role. Remaining colleagues may also wonder why a top performer chose to leave and prompt them to question whether they should consider leaving, too.

Missed business opportunities

Without a good retention program, companies run the risk of losing the support of their best ambassadors: their current and former staff. If departing workers have a good experience at your company, they will be more likely to recommend you to new job candidates after their departure. They may even encourage their new company to do business with their former employer.

Employees who leave a healthy work culture are also more likely to return in the future. The number of so-called “boomerang employees” is on the rise. Most companies want to keep the door open for high performers to return,according to a recent Harvard Business Review article.

Improving the employee experience can have positive ripple effects. The MIT Sloan School of Management found a good employee experience is linked to better business outcomes and customer experiences:

  • Companies that scored in the top 25% for employee experience were twice as innovative as companies in the bottom quartile.
  • Companies with better employee experience also had double the customer satisfaction and 25% more profitability.

Despite the many benefits of retaining talented employees—and the high cost of losing them—more than half of companies today still don’t have an employee retention plan.


Retention rate is important because limiting employee churn saves businesses both time and money. Vacant positions mean either work isn’t getting done or other workers are forced to take on more. In addition, organizations with poor retention often see productivity suffer and employee morale wane.

Employee retention is only a problem for organizations that struggle to maintain employees. That said, a low retention rate can have a devastating impact on a company’s productivity and earning capacity, so having a strong focus on retention is an important priority for most HR professionals.

In a high turnover culture, the key to retaining staff is making substantive changes within the organization. The first step is to find out why employees are leaving—through exit interviews or other means. Then, taking strategic action to improve the culture should improve retention.

To fix retention issues, begin by making an improved retention rate an important initiative for the company. Next, do the necessary work to diagnose why retention issues exist, such as conducting anonymous employee surveys. That information will help you understand what exactly to work on fixing.

Employee retention risk considers both the likelihood an employee is to leave the company, and the impact their turnover would have on the organization as a whole. It can be assessed using a matrix with likelihood to leave on one side and impact of turnover on the other.