​A Silent Leak that Drains Profit Margins 

This brief analysis examines a major cost many employers overlook when reducing their workforce: turnover costs. These include offboarding, recruitment, and on‑boarding expenses to include training. On average, replacing an entry‑level worker can cost 40 to 60 percent of annual salary; mid‑level managers and professionals can range from 100 to 150 percent; and top‑tier professionals, managers, and executives, can reach 200 percent or more. 

To recover these costs, businesses must retain new employees long enough to break even — typically from just over six months to two or three years. The Oregon Employment Department offers an alternative approach: retaining workers on reduced schedules through the Work Share Unemployment Insurance program. which is easy to register for and manage.  ​

Introduction

For most of the past fifteen years (excluding the COVID‑19 recession), the U.S. labor market has been a “job seeker’s market.” Increased retirements, slower population growth, and more restrictive immigration policies have kept labor demand above supply. As a result, despite recent cost‑of‑living spikes driven by COVID‑19 disruptions and ongoing Middle East fuel‑supply tensions, wages have slightly outpaced living costs. Labor remains a major business expense — not only for wages, but training, benefits, and a commonly overlooked factor: turnover. 

Many groups have analyzed turnover costs for decades, including the Society for Human Resource Management (SHRM), HRBench.com, the U.S. Bureau of Labor Statistics (BLS), the Federal Reserve, and major labor‑exchange organizations such as Indeed, LinkedIn, and Glassdoor. Still, many businesses facing economic slowdowns choose immediate layoffs to cut costs, only to later find that turnover expenses offset much of the expected savings. 

​Most sources estimate that replacing an employee cost from 50 to over 200 percent of annual salary. With U.S. median wages at $50,980 (2025 Occupational Employment and Wage Statistics, or OEWS, from BLS), these costs can escalate quickly depending on occupation, experience, and region. SHRM’s 2024 estimates place turnover costs at about 50 percent of salary for entry‑level roles; 100 to 150 percent for mid‑level professional, technical, and managerial roles; and 150 to 200 percent for senior management and specialized professional roles. 

Turnover costs for entry level roles with minimal required skills, knowledge and abilities (SKAs) are more easily absorbed by businesses; however, this gets more difficult to do the higher the SKAs required, even for entry level jobs.  This is due to increased wages to attract highly skilled workers, the time to train them, and the time it takes for those positions to become 100% productive. The higher the required SKAs, the more difficult it is to find workers. This is demonstrated by unemployment rates for occupations in demand, which increasingly drop as the skills needed rise. To recover their turnover costs, businesses need to develop a retention plan that will retain newly hired employees long enough to recover their turnover costs for those positions before incurring new ones.  To understand how long this can take, recovery of turnover costs comes from the profit margin after employment costs are covered. If the profit margin per employee is 25-50% above the cost of employment (wages, benefits, employer side taxes, etc.) then recovery can take much longer than a company thinks. 

Example: Assuming the cost of employing one mid-level position is $100,000 and the profit they generate is $25,000 and turnover costs for the position equals $100,000 which is estimated at 100% of annual salary, it will take a company four years of a constant employment profit margin of $250,000.  That profit margin does not start when they are employed, but when they become nearly 100% productive. So, this employee development can add more time to recovering cost of turnover.   ​

The labor force continues to shrink, keeping upward pressure on wages. Many experts in the field of Artificial Intelligence (AI) technology predict that many entry-level and low-skilled jobs can be replaced with AI alternatives. Currently less than 15-18 percent of all businesses have integrated some level of AI into their business model, most of it associated with generic prompt-based AI engines. However, AI is not yet positioned to fully offset labor shortages. Infrastructure development is slow, training for both operators and machines remains limited, concerns over resource demands are increasing, and the cost of adopting AI technologies remains high. For now, relying on AI as a large‑scale labor‑substitution tool remains aspirational. ​

Many employers are now adopting a contract-based strategy for meeting their labor needs, particularly for mid-to-high-level technical, professional and trade occupations. According to the US Government Accountability Office (GAO), 33 percent of US companies reported using contractors. However, this strategy has inherent issues such as control of contractor’s time, rising contractor costs that businesses pass along to their business customers, and the loss of rights to intellectual, creative and commercial products or services developed by the contractor in support of their work (unless addressed in writing in the contract). Employers also face scrutiny by federal and state labor and revenue agencies when determining if the relationship is employer-employee or business to business. 

​The Oregon Employment Department’s Work Share program provides an alternative to layoffs by allowing businesses to reduce labor costs through work schedule reductions. Employees can then qualify for partial Unemployment Insurance benefit payments to help offset some of the wages they lost.  This allows employers to make adjustment to their business models while retaining their quality and well-trained workforce, all the while minimizing turnover costs.  This program is easy to register for and manage, and employers can get technical support from Work Share staff as needed. OED offers weekly webinars for employers interested in learning more about the program and helping employers set up their Work Share plans.  

​Conclusion​​

Businesses need to consider a long-term analysis of turnover costs when determining if mass layoffs are the most financially sound option for cost cutting.  They should also consider current labor force trends and skill availability in their local labor market to determine if they will have a strong pool of candidates when they begin recruitment for growth, as well as how that will impact the time and cost of recruitment. Businesses have adopted many approaches to labor cost reductions, including AI and other automatization technology, contract workers, and should know Workshare is an option as well.