what causes employee turnover — and what to do about it.

The cost of employee turnover can be high, especially when you add in the loss of morale and productivity among coworkers. The good news is that you can control employee turnover to some extent.

By tracking employee turnover rates, you can spot developing problems and identify sectors or divisions within your company with poor talent retention.

Discover primary reasons for employee turnover and learn valuable strategies to improve retention and reduce your employee turnover rate.

why does employee turnover matter?

Simply put, employee turnover matters because it costs you money. First, it’s expensive to keep hiring new employees. According to data collected during 2021 from the Society for Human Resource Management, companies, on average, pay over $4,500 to recruit and onboard a new worker.

Increased recruitment costs aren’t the only side effect of high turnover. Productivity decreases as new employees aren’t as efficient as existing staff for quite a while after they’re hired. Employee morale also suffers when people leave. Occasionally, the resignation of a key person can cause a turnover exodus as other staff members also depart.

When everything is said and done, the cost of employee turnover can exceed the annual salary of each abandoned position, sometimes by three or four times.

For HR managers or corporate leaders, thorough staff turnover analyses are critical to helping identify why employees are leaving and to implementing beneficial changes.

what is employee turnover?

In simple terms, employee turnover is a measurement of the number of people who leave your company over a specific time period, leaving you with the task of replacing them or redistributing talent. However, there are several types of employee turnover, some desirable and some undesirable. Below we’ll break down the different classifications of terminations, including voluntary and involuntary. We’ll also talk about redundancies.

desirable versus undesirable turnover

Can employee turnover ever be desirable? In a word, yes. When unproductive workers or employees with negative attitudes leave your organization, morale can actually improve. Workers who underperform are expensive to maintain and can reduce productivity. When they leave and you replace them with fresh, enthusiastic talent, productivity levels almost invariably go up. 

Trailblazing employees, on the other hand, leave big shoes behind when they depart. When disenchanted, frustrated or bored, top performers seek out new pastures. After they leave, former colleagues may feel adrift and demoralized. Unsurprisingly, this type of turnover is undesirable. 

voluntary resignations

When the employee initiates a break from the company, it's called a voluntary resignation. These can be desirable or undesirable, depending on how they fit into the above scenarios.

However, most of the time, people quit jobs because they find other positions that better match their skills or long-term plans — or because they move. Those types of voluntary turnovers are undesirable. Thankfully, they’re also the type you can most easily control.

involuntary terminations

Workers who violate company policies, fail to perform well over an extended period or get tangled up in misconduct face involuntary termination. Also known as dismissal or firing, involuntary termination is set in motion by the employer. It’s usually a last resort and carries a certain level of risk.

Occasionally, employers permit an employee to resign rather than face termination. These are categorized as involuntary resignations. Unfortunately, if you don’t follow employment laws to the letter, seemingly straightforward dismissals can quickly become more complex.

redundancies

Redundancies happen when companies reduce staff to stay solvent during tough economic times or when seasonal projects end. For instance, the airline industry was forced to lay off or put on notice more than 400,000 workers during the coronavirus pandemic. As a result, despite widespread government subsidies, thousands of workers had to claim unemployment funds en masse. 

Redundancies are generally seen as a type of "fair" dismissal — providing employers don’t use unfair selection criteria to pick the workers they let go. When people are made redundant, they’re often entitled to paid redundancy packages, so research employment laws in your area before proceeding.

why measure employee turnover?

As with any business metric, keeping track of staff turnover helps you map your progress to the desired goal — in this case, an effectively low employee turnover rate. Conversely, if you measure a high employee turnover rate, you know you'll need to recruit more — and plan for recruitment costs, which can add up. 

Most companies measure staff turnover on a quarterly or annual basis. Some businesses stick to company-wide rates while others segment by department or location to gain maximum insight. When it comes to business metrics, the more data you have, the better equipped you are to act. 

how to calculate employee turnover rate

With the help of HR records, you can quickly determine the employee turnover rate for your company. Before you begin, set the time frame for your information — most organizations calculate a monthly, quarterly or annual turnover rate. Then, add up the number of people who left your company during the selected period. This is your actual employee turnover.

Next, find out how many employees you had at the beginning of that period and how many employees were present at the end. Then, add these two figures and divide them by two to determine the average number of employees. 

Finally, use the following employee turnover calculation to come up with a percentage:

(Workers who left ÷ average number of workers) x 100 = employee turnover percentage

Example of employee turnover formula

Imagine you employed 200 people on January 1st and 196 people on December 31st. Between January 1st and December 31st, 20 people left your company (actual employee turnover). With those figures in mind, here’s how you’d calculate your employee turnover percentage:

• (200 + 196) ÷ 2 = 198 average employees
• (20 ÷ 198) x 100 = 10.1% employee turnover annually

If you employ temporary or seasonal workers, measure turnover for this group separately from full-time and part-time employees. That way, you can track staff-related expenses more accurately.

what is a good employee turnover rate?

A zero percent employee turnover rate simply isn’t realistic or desirable. So what is a realistic turnover percentage, then? The answer varies depending on the region, industry and roles within those industries. In addition, data methodology and world circumstances affect rates. For example, a press release by Gartner in April 2022 forecasts that U.S. companies could expect a significant spike in turnover percentages post-pandemic.

LinkedIn's 2021-2022 survey of turnover rates among members shows that while the average was 10.6%, certain industries had much higher rates, with professional services topping the list at 13.4% and tech and media only slightly lower at 12.9%. Government workers (8.4%) and construction crews (9.2%) scored below-average rates.

Turnover rates among job positions placed human resources at the highest level with a rate of 14.6%, and administration recorded the lowest at 7.8%.

By tracking your employee turnover rate, you can easily spot alarming trends and see where your business falls when compared to competitors or other companies within your region. Before we focus on improving your staff turnover rate, let’s discuss why employees move on.

what causes employee turnover?

Employees may leave a position for many reasons, including a toxic work environment, better pay elsewhere and new career prospects. Some motives are out of your control, such as a change in a family situation, relocation or illness.

However, most voluntary resignations happen because of management problems, lack of opportunity or burnout. The State of the Global Workplace 2022 Report from Gallup provides insight into workers’ mental states and reasons for job dissatisfaction. Let’s dive deeper into some common turnover triggers.

top reasons for employee turnover

management problems

When managers constantly berate employees, work environments turn hostile and people resign. Supervisors who micromanage — or take the opposite tack and leave employees entirely to their own devices — also increase staff turnover. People who find their line managers difficult to work with often dread coming to work.

uncomfortable work environment

Sometimes the problem isn’t the boss but coworkers. When the company culture doesn’t provide a safe, inclusive work environment, people feel stressed and are quickly willing to jump ship.

burnout

High-pressure working environments and too little downtime invariably cause employee burnout. When people feel overworked and overcommitted, they begin to feel overwhelmed. Unless they’re given opportunities to restructure their schedules, these workers seek new jobs. 

boredom

Not every job can be as exciting as we would like it to be. However, companies need to find ways to challenge their employees. Changing up tasks and providing chances for reskilling can help prevent workers from feeling disengaged — a feeling over three-fourths of the workers in the Gallup poll admitted to.  

not enough flexibility

Workers are requesting and receiving flexible schedules and opportunities to work remotely. If your company is lagging in these offerings, you may need to prioritize a hybrid workplace to attract talent.

reducing employee turnover

To retain good employees, you must understand how the above key triggers relate to your organization. Only then can you devise a specific strategy to combat each situation.

With the knowledge of how your organization works, including its chain of command and current employee training and incentive programs, you can make changes that directly address the above problems. For example, here are three actionable steps to boost employee retention.

create training opportunities

When training abounds, employee turnover plummets. According to the 2022 Learning & Development Report by Findcourses, over two-thirds of the employees that ranked themselves as highly satisfied with their jobs also said their company promoted a learning culture. Ideally, training should start at the onboarding stage and continue throughout the worker’s tenure. 

Training programs allow employees to develop new skills and explore different career paths within your company in a practical way to combat boredom and reduce burnout.

Furthermore, management training can help develop the traits necessary to create effective leaders. Employees desire a fair, encouraging boss that provides positive feedback and recognizes their talent.

offer flexible scheduling

Many employees benefit from flexible schedules and the opportunity to work remotely, such as parents who need to pick kids up from school or employees with long commutes. Other individuals prefer to work on a per-project basis rather than a per-hour basis. 

In the manufacturing industry, multi-shift days lend themselves well to flexible scheduling. Likewise, many companies in the logistics sector operate 24 hours a day, 7 days a week, making them well-suited to flex scheduling.

In a July 2021 quarterly report, McKinsey noted a vast disconnect between employers who want employees back in the office and employees who wish to remain working from home. Understanding what employees really want and adapting to their needs allows you to get ahead of competitors when recruiting and retaining talent.

implement a recognition program

Well-designed employee compensation and recognition programs give workers a lift and help to improve retention rates. Traditional awards like Employee of the Month still work well, as do bonus checks and project-based awards. To make the most of your recognition program, acknowledge achievements promptly and provide meaningful feedback.

If you’d like to learn more about strategies to reduce employee turnover, the first step involves understanding the top causes of employee turnover. Click on the link below to download our handy guide.

This is an updated version of an article originally published on 25 June 2021.