Have any Questions?
A resignation letter rarely arrives with an invoice.
Recruitment expenses may appear in a budget, but the wider costs – lost productivity, disrupted customer relationships, management time, pressure on colleagues and organisational knowledge walking out the door – are scattered across the business.
Many organisations know their turnover rate. Far fewer know what it actually costs.
Turnover seems to enjoy an unusual management privilege: it can consume hundreds of thousands of dollars and disrupt customers, teams and performance without anyone calculating the total bill.
If the same loss appeared in inventory, revenue or operational waste, leaders would demand answers. When it involves people, it is too often accepted as part of doing business.
At what point does failing to measure the cost become less an oversight and more a leadership choice?
A substantial and largely hidden cost
New Zealand’s 2024 National Staff Turnover Survey reported overall turnover of 21.4%, including voluntary turnover of 17.4%. More concerningly, first-year turnover was 38.8% – approximately one in every 2.6 new employees leaving within 12 months.
Gallup estimates that replacing an employee can cost between one-half and twice their annual salary, depending on the role and level of seniority.
| 21.4% | 38.8% | 0.5x to 2x |
| Overall NZ turnover | First-year NZ turnover | Estimated salary replacement cost |
Consider a business employing 100 people, with average remuneration of $85,000 and annual turnover of 20%. That represents 20 replacements each year. Using even Gallup’s lower estimate of half an employee’s salary, the potential annual cost is $850,000.
Would an $850,000 loss elsewhere in the business escape serious leadership attention?
The calculation is illustrative. Replacing an operational employee is different from losing a senior leader, technical specialist or key customer relationship holder. Nevertheless, it demonstrates the potential scale of a cost many organisations do not quantify.
The recruitment invoice is only the beginning
Advertising, recruitment fees, interviewing, checks and induction are the obvious expenses. They are not necessarily the largest.
While a role is vacant, output may fall, projects can be delayed and customer commitments placed at risk. Managers and experienced employees are diverted from their responsibilities to cover the work, recruit and train the replacement.
Full productivity is rarely immediate. The new employee must learn the position, understand systems, establish relationships and acquire knowledge that their predecessor may have accumulated over years.
The work left behind is usually redistributed among those who remain. Initially, people may absorb it willingly. When vacancies are prolonged or departures frequent, goodwill can turn into fatigue and frustration.
Engagement declines. Errors and rework increase. Customers experience inconsistency. Employees begin asking why people are leaving – and whether they should consider the same. The organisation may also lose specialist knowledge, trusted relationships, informal leadership, cultural continuity and succession potential.
Turnover affects performance and can spread
A major meta-analysis by Park and Shaw examined 300 correlations involving more than 300,000 people. It found a significant negative relationship between staff turnover and organisational performance, with voluntary turnover having a greater negative relationship than involuntary turnover.
Research into turnover contagion has also found that colleagues’ attitudes and job-search behaviour can influence another employee’s decision to leave.
One departure increases pressure on those remaining. That pressure affects engagement and wellbeing. Managers become absorbed in recruitment and onboarding rather than leading their teams. More people begin considering alternatives.
Externally, repeated turnover can damage employer reputation and make strong candidates more difficult and expensive to attract. This is an operational, financial, customer, cultural and reputational issue.
Which turnover should concern leaders
Some turnover is inevitable and occasionally beneficial. The objective should not be zero turnover. The concern is avoidable and damaging turnover:
- Strong performers or people with scarce capabilities leaving
- New employees departing within their first year
- Repeated turnover in the same role or team
- Departures associated with a particular manager
- Loss of critical customer or organisational knowledge
- Turnover caused by poor appointment decisions, job design or leadership
Gallup’s research suggests that 42% of voluntary turnover could have been prevented. Many departing employees said their manager or organisation could have taken action that may have changed their decision.
Leaders need to ask more than, ‘What is our turnover rate?’ Who is leaving? From where? At what point? Why? What capability are we losing? What is it costing, and what are we doing about it?
Retention begins before the first day
Leadership, culture, workload, recognition and development all influence whether good people stay. But retention begins earlier, with the quality of the appointment decision.
Every appointment is ultimately a prediction: will this person be able to perform successfully, remain engaged and contribute positively in this particular role and organisation?
Yet many organisations make that prediction largely through CVs, experience, interviews, intuition and personal chemistry. These provide useful information, but leave important questions unanswered.
Does the candidate have the reasoning and learning capability required? How are they likely to approach decisions, relationships, pressure and change? What genuinely motivates them? Where are the potential strengths and risks in their alignment with the position?
Better evidence before an expensive decision
This is where psychometric assessment becomes much more than another recruitment step.
Properly selected and professionally interpreted psychometric assessments make important, otherwise largely invisible aspects of appointment risk more visible. They provide objective evidence about capability, behaviour, competencies, values, motives and role alignment.
They do not make the decision and should never be used in isolation. Nor can they compensate for poor leadership, a dysfunctional culture or unreasonable working conditions.
What they can do is reduce reliance on instinct, challenge first impressions, identify potential risks before appointment and provide practical guidance for onboarding and management.
The leadership challenge
- Calculate the real cost, including lost productivity, management time, learning time and operational disruption.
- Diagnose the pattern across roles, teams, managers and first-year departures.
- Strengthen the decisions and conditions influencing whether good people stay, including role clarity, objective assessment
, onboarding, leadership and development.
Organisations routinely undertake due diligence before significant financial and operational investments. A critical appointment deserves the same discipline.
Psychometric assessment is not a crystal ball. It is disciplined decision support.
Its value is not that it replaces human judgement. It gives leaders better evidence on which to exercise it, before another costly appointment or preventable departure demonstrates what incomplete information can cost.
Research referenced
