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How to Calculate and Improve Employee Turnover

Max Freedman
Max Freedman
Business News Daily Contributing Writer
Updated Sep 20, 2022

Learn what causes employee turnover and how to improve retention.

  • Employee turnover is the rate at which employees leave a company within a set period of time.
  • Calculate employee turnover by dividing the number of employee departures by the average number of employees.
  • Reduce employee turnover by recognizing, investing in and communicating with your employees.
  • This article is for business owners who want to understand what employee turnover is and how they can reduce it.

If employees are leaving your business in droves, it could become a big problem. Having some level of employee turnover is normal, but it is crucial to retain your top talent and build a consistent team so you’re not constantly hiring and training new employees. The best way to keep your best workers is to learn what your employee turnover rate is, identify what is causing it and implement these key strategies.

What is employee turnover?

Employee turnover is when workers leave your company. This includes both voluntary turnover (e.g., an employee resigns, retires or transfers) and involuntary turnover (e.g., an employee is laid off or fired). Although some level of employee departure is expected, it is important to monitor your turnover rate to get better insight into employee morale and to make informed decisions.

When you’re evaluating whether your company has high or low employee turnover, consider your industry; for example, hotels typically have much higher employee turnover than government jobs do. If you are experiencing a higher-than-average employee turnover rate for your industry, it may be time to make some internal changes. 

Key TakeawayKey takeaway: Variable pay is the extra money your sales agents earn atop their base salaries for hitting certain performance marks.

How to calculate your employee turnover rate

Employee turnover rates are measured and evaluated over a set period – typically one year. Businesses often calculate the employee turnover rate for the entire company, but you can also break it down by individual departments, teams or demographics. This can help you plan and budget for specific areas of your company.

“It can also be really useful to break your turnover figures down by other factors, such as by team, by gender or by age,” Susan Andrews, HR consultant at KIS Finance, told Business News Daily. “That way, you may be able to identify potential problems within specific parts of your workforce and take action to address any issues that you discover.”

To calculate your employee turnover rate, you need three figures: the number of employees who left in a given time frame (both voluntarily and involuntarily), the number of employees at the beginning of that time frame, and the number of employees at the end of that time frame.

First, you must calculate the average number of employees during the set time frame:

  • Average number of employees = (Number of employees at the beginning of set time frame + Number of employees at the end of set time frame) / 2

After you have the average number of employees, use the following formula to calculate your employee turnover rate:

  • Employee turnover = (Number of employee departures / Average number of employees) x 100

How does turnover affect your business?

Low employee turnover usually has a positive impact on a business, whereas high turnover is generally negative. Businesses with low turnover rates tend to have more favorable reputations. A desirable turnover rate, somewhere around 10%, signifies high employee satisfaction, which, in turn, helps attract top talent.

Conversely, high turnover rates – above the average of 18% – can be damaging to your business. The cost of replacing an employee can range from 33% to 200% of that employee’s salary, according to GoBankingRates.

Todd Brook, managing director of the employee engagement platform Engagement Multiplier, said about 67% of those costs are “soft costs,” such as the opportunity cost incurred when a project is delayed, but there are also the additional costs of using internal resources to recruit, hire and train new employees.

“Thirty-three percent of the costs are ‘hard costs,’ representing cash outflow,” he added. “These costs include hiring temporary workers or outsourcing work as a result of employee departures, as well as the costs associated with hiring: advertising, recruiting fees, and the costs of drug tests and background checks.” [Visit our background check service reviews page to learn more about background checks.]

Besides the monetary costs, high turnover can have a huge impact on your ability to hold on to your most talented employees. If an underlying issue is causing top performers to resign, they will be taking their knowledge and experience with them. This can reduce the quality of your products and services and tarnish your business’s reputation.

Plus, “your remaining staff may also feel under additional pressure if they need to take on extra work while you find a replacement, and this can lead to stress and burnout,” Andrews said. “It can be all too easy to find yourself in a vicious circle of constantly losing staff as the working environment becomes less attractive.”

Having a constant cycle of new staff members can distort your company culture as well. Employees tend to learn the values and rules of the workplace more effectively from their co-workers than from an employee handbook. Without long-term employees to set the tone, your company culture can suffer.

“Long-term employees become the ambassadors of this culture for new hires,” said Matt Erhard, managing partner at the recruitment and executive search firm Summit Search Group. “If your company has difficulty maintaining long-term employees, there will inevitably be knowledge loss over time, since new hires won’t get this cultural guidance from the old guard.”

Key TakeawayKey takeaway: High employee turnover can cost you time and money, as well as damage your company culture and reputation.

What causes employee turnover?

Some instances of employee turnover are inevitable and outside the company’s control, like when employees relocate or retire. However, many times, employee turnover is caused by unfavorable workplace circumstances that can be managed.

“Most of the controllable factors are based around the employee experience,” Erhard said. “Employees are more likely to quit if they feel underappreciated and overworked, especially if their work stress is making it hard for them to maintain a good work-life balance or causing them physical or emotional distress because of improper work conditions and employee care.”

Employee turnover also can be the result of poor management, a negative company culture, a lack of career advancement opportunities, and inaccurate job descriptions. In addition, employees can become disengaged from their job over time, and what was once a good fit might no longer be motivating.

“Disengagement is costly in and of itself, reducing productivity and contributing to increased rates of absenteeism,” Brook said. “However, when disengagement actually leads to turnover, the problems compound for the employer – remaining staff have to pick up extra work, and one employee’s departure can lead to others deciding to test the job market.”

Key TakeawayKey takeaway: Employee turnover is often caused by poor management, a lack of career advancement opportunities and poor work-life balance (employees feel undervalued or overworked).

What are some tips for improving employee turnover?

Before you can improve employee turnover, you must identify the reasons behind it. Based on the problems you identify, you can implement any (or all) of the following strategies to improve employee retention.

TipTip: You can manage and optimize the following tips by using one of the best HR software solutions. To learn more about some of our favorite HR platforms, see our Gusto review and our Rippling review.

Prioritize your recruitment strategy.

The first step in developing a great company culture with low employee turnover is to ensure you are hiring the right employees for the job. Create accurate job descriptions, and pay attention to your recruitment process.

“If you have a significant number of new hires that ‘wash out’ quickly after training (or don’t make it through training), this is a sign you’re not choosing the best candidates for the position,” Erhard said. “Lowering turnover starts with hiring qualified employees who fit your company’s values, then creating a culture that makes employees want to stick around for the long haul.” 

Invest in onboarding new staff.

After you’ve hired the right candidates, you need to train them properly. Andrews said the first few weeks for new staff may determine whether they turn into long-term employees or leave as soon as they find an alternative.

“Invest time and resources in making sure they get a really thorough induction and are well supported in these early days,” she said. “If they feel wanted and valued from day one, they are more likely to start to develop loyalty toward the company and want to stay with you, even in more challenging times.”

Elicit and respond to employee feedback.

An important element of every successful business is great communication. Facilitate a company culture that thrives on open communication. In addition to giving employees feedback, you should ask them for it. Use meetings and employee surveys to gain insight into staff needs and concerns.

“Every company will have different challenges in this regard, but all the commonly cited reasons for quitting (e.g., poor work-life balance, workplace or management conflicts, lack of advancement opportunities, etc.) can be addressed by listening to the concerns of your employees and adjusting your policies and procedures accordingly,” Erhard said.

Engage and recognize your team.

It is important to make sure your current employees feel engaged, motivated and valued. Encourage them to take on new projects, offer training and career advancement opportunities, and recognize employees for good performance. Employees who feel stimulated, valued and appreciated are more likely to stick around.

Regularly review pay and benefits.

Although employee compensation partly depends on your company’s budget, review and modify employee benefits and salaries as often as you can. The longer an employee works for your company, the more they can hone their skills and expertise – and they should be rewarded for that. Offering competitive pay and benefits can make employees feel appreciated and keep them from seeking employment elsewhere.

“It’s essential to keep your pay and benefits under review to make sure you’re offering staff a competitive reward package,” Andrews said. “If staff feel you are failing to recognize their worth and true market value, then you face the risk of them leaving you for a competitor who is willing to invest in them.”

Turn over a new leaf for your team

Most people prefer stability to constant change. When you improve your work environment, you provide that stability. A better time at work means a longer time in the role, and that means lower employee turnover. Plus, by reducing your employee turnover rate, you’ll also cut down on costs associated with labor, training, recruitment and other HR functions. Listen to what your team wants and needs, act accordingly, and watch as conditions improve for both your team and your company.

Image Credit:

fizkes / Getty Images

Max Freedman
Max Freedman
Business News Daily Contributing Writer
Max Freedman is a content writer who has written hundreds of articles about small business strategy and operations, with a focus on finance and HR topics. He's also published articles on payroll, small business funding, and content marketing. In addition to covering these business fundamentals, Max also writes about improving company culture, optimizing business social media pages, and choosing appropriate organizational structures for small businesses.