Employees are arguably one of the largest investments a company makes. According to Human Capital Management Institute LLC (HCMI), the Total Cost of Workforce (TCOW) is, on average, nearly 70% of operation expenses.

 

Included in that number are workforce acquisition costs. This can include hard costs such as job postings, recruitment fees, and any assessment testing involved.

 

But many companies overlook hidden areas of expense such as loss of productivity from a prolonged search, the impact of turnover for hiring the wrong candidate, and a host of other expenses that come with onboarding workers to ensure their success.

 

The real cost of hiring a new employee encompasses the entire process. Like any process, it can be examined to isolate costs, improve outcomes, and increase efficiency.

 

While there are dozens of tools that allow you to calculate the costs of hiring, outlining the entire process can reveal the true cost of employee turnover and ways of reducing it.

 

Understanding the True Cost of Hiring an Employee

The cost of hiring a new employee goes far beyond posting a job and conducting interviews. When organizations fail to understand the complete picture, they're setting themselves up for budget surprises and recurring expenses that could drain resources year after year.

 

The average voluntary turnover rate in the U.S. has dropped to 13.5% in 2025 according to Mercer's Workforce Turnover Survey, but this improvement doesn't eliminate the financial impact. The cost of replacing an employee ranges from half to four times their annual salary, with Gallup estimating costs between 1.5 to 2 times their salary for salaried employees.

 

Here's what the cost of hiring a new employee really includes: recruitment expenses, onboarding investments, training time, lost productivity during transitions, and the hidden costs that emerge when hiring too fast without proper screening processes.

 

The Hidden Cost of Employee Turnover

Beyond the obvious cost of turnover, organizations face substantial hidden expenses that multiply the true cost of hiring an employee. Gallup estimates that employee turnover costs U.S. businesses a trillion dollars every year, with much of this stemming from indirect costs that don't appear on traditional expense reports.

 

When companies focus on keeping employees happy through comprehensive benefits, flexible work from home policies, and robust employee development programs, they significantly reduce these hidden costs. Organizations that prioritize employee appreciation and celebrating team achievements see measurable improvements in retention rates.

 

Modern Recruiting Challenges and Solutions

One of the basic foundations of a hiring process is finding people who are qualified and interested in a job. This can be a complex process for high-level positions, but for most hourly positions, the costs companies usually associate with hiring are advertising in local newspapers or online.

 

While this method may seem to be budget conscious, it ignores other avenues taken by a staffing agency. For example, Nesco Resource combines advertising, job fairs, multiple online postings, and a database of jobseekers that is constantly refreshed with candidates.

 

Many of these workers have a steady stream of assignments and are proven to be reliable employees for specific types of work. Staffing specialists have worked with some of these individuals and know their skillsets, desired schedules, and dependability.

 

The recruiting landscape has evolved dramatically. Nearly half of employees surveyed in a 2025 employee survey by Nectar plan to look for work in the next three months. This estimate creates both challenges and opportunities for employers.

 

Another important factor in the recruiting process is screening: the process of looking at a pool of potential candidates and filtering out which individuals have the skills, background and fit the pay range for a particular position. The screening process is often taken for granted in recruiting, but it is vital to reducing the overall cost of hiring a new employee.

 

The cost of hiring an employee now includes sophisticated digital recruitment tools, competitive employer branding, and relationships between employers and employees that extend beyond traditional boundaries. Staffing partners provide valuable screening capabilities that many internal teams lack the capacity to perform effectively.

 

Employing a staffing agency can streamline the process of screening candidates and adjust it according to circumstance. Ultimately this saves time and money by ensuring that a company isn’t overpaying for employees but is also remaining competitive with local wage trends.

 

A pool of talent at any given moment can be limited and casting a random net into that pool may not garner results. Using a staffing agency like ours is a more targeted approach that can help reduce the cost of turnover and mitigate many of the other process costs down the line.

 

Strategic Onboarding for Better Retention

Another cost associated with hiring is onboarding. This can include everything from training and orientation to activating benefits, setting up payroll, taxes, workers compensation, and more. These activities are often absorbed as an internal cost and hidden as part of the hiring process.

 

Effective onboarding programs now focus heavily on recognizing employees early and establishing clear expectations for employee development. The Society for Human Resource Management (SHRM) estimates hiring a new employee costs as much as $4,700 when considering factors like advertising, interviewing, and onboarding.

 

Staffing agencies often include all of these costs in the onboarding process, presenting a consolidated fee which accounts for both time spent in the recruitment process and for the process of onboarding an employee.  In addition, a temporary staffing agency is often set up to more efficiently handle these processes particularly if they are high volume.

 

And onboarding doesn’t necessarily end after an employee begins working. The process continues into the first few days and weeks on the job. 

 

These are only a few examples and carefully examining onboarding as a place for streamlining or improving a process can help save money, time, and impact the cost of employee turnover.

 

Calculating the True Cost of Turnover

One of the greatest hidden costs of hiring is the often unaccounted for: loss of production. The longer a position goes unfulfilled or the longer an onboarding process takes, the more time is taken off production.

 

Loss of production can be measured in two ways. First there is a direct loss to production if a worker is producing a product. Oftentimes, however, there isn’t a straight line in this accounting. Tasks may fall on other workers to pick up the slack while a hiring and vetting process is continuing, for example.

To understand your cost of employee turnover, you need to look beyond the obvious expenses. Research shows that 30 percent to 40 percent are hard costs, while the other 60 percent are soft costs.

Here's a framework for calculating these costs:

Hard Costs:

  • Recruitment advertising and job board fees
  • Background checks and assessment tools
  • Interview time (calculated by hourly wages of interviewers)
  • Onboarding materials and training resources

 

Soft Costs:

  • Lost productivity during vacancy period
  • Training time for existing employees covering additional duties
  • New hire productivity ramp-up period (typically 3-6 months)
  • Team morale and engagement impacts

 

Current data shows that replacing a $50K employee costs approximately $16,500, or 33% of their annual salary. Meanwhile, executive replacements can cost 200% or more of their salary, according to recent retention studies.

 

While loss of production can be very difficult to quantify, the time a position is left open is easier. For example, if your workforce is at 90% capacity for three weeks using process A, but process B can reduce that window to less than a week, isn’t it worth examining?

 

The actual costs may be hard to quantify but the desired outcomes are not. Identifying this choice helps organizations begin to shape hiring process.

 

Mapping Your Process for Maximum Efficiency

There is no cookie-cutter matrix for the real cost of hiring a new employee because every business is different. However, mapping out the process for hiring and affixing costs to each area is an important step in determining what direction is best for the bottom line of your company.

 

As mentioned earlier, cost calculators can be helpful as guides, but they often don’t capture every aspect of the recruiting, hiring, and onboarding process. Also, they don’t identify important elements such as reducing turnover rates and increasing productivity.

 

With this process map, you can choose which areas to improve, and areas where a staffing agency may be able to help. Finding the right employees is really only one step in a process that could help reduce your workforce acquisition costs.

 

Frequently Asked Questions

What is employee turnover?

Employee turnover refers to the rate at which employees leave an organization and are replaced by new employees. This includes both voluntary departures (resignations, retirements) and involuntary separations (terminations, layoffs).

 

What is the cost of employee turnover?

The cost of employee turnover typically ranges from 50% to 200% of the departing employee's annual salary, with some estimates reaching up to 213% for C-suite positions. This includes direct costs like recruitment and training, plus indirect costs like lost productivity and decreased morale.

 

How do you calculate the cost of turnover?

To calculate your cost of turnover, use this formula: (Hiring costs + Onboarding costs + Training costs + Lost productivity costs) × Number of departing employees = Total annual turnover cost. Most organizations find it helpful to track both direct expenses and estimated soft costs.

 

What is a normal employee turnover?

The average voluntary turnover rate in the U.S. is currently 13.5% in 2025, though this varies significantly by industry. Industry-specific rates range from less than 1% in state and local government to over 13% in the tech sector. Normal rates depend on your specific industry, role levels, and regional factors.