Employee turnover rate is the percentage of employees that leave a company or organization during a certain period of time. Simply put, it measures how often employees quit, are let go or need to be replaced. It is calculated on an annual or monthly basis.

It’s also important to note that turnover is completely normal. No company retains 100% of its employees forever. People retire, relocate or move on for better opportunities. A low turnover rate generally means people stay with your company longer, while a high turnover rate means many people are leaving and you have to hire replacements frequently. Every industry has some expected level of turnover, but if your turnover is unusually high, it can be a warning sign of problems in the organization. 

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Why track employee turnover rate? 

Turnover rate is often used as a “pulse check” on organizational health. Monitoring it helps you understand how well you’re retaining talent. High turnover can signal issues like low morale, poor management or uncompetitive pay. It also directly affects the bottom line: hiring and training new employees is expensive and time-consuming. Therefore, successful companies keep a close eye on turnover. Specifically, they compare their attrition rates with industry benchmarks and take action if the rate is too high. By tracking turnover trends over time, you’ll be able to see if things are improving or getting worse, and then identify patterns to help improve performance. For example, if one department has a significantly higher turnover rate than another or if most departures happen at a certain time. In sum, if you measure employee turnover rate, you’re probably going to find ways to improve it. 

Employees leave jobs for many different reasons, and it’s crucial to understand these reasons in order to address turnover. Some common drivers of turnover include:

• Inadequate compensation and benefits: Not surprisingly, low pay is a top reason for turnover. Simply put, if workers believe they can earn more elsewhere (especially if they believe they aren’t compensated adequately), then they’re likely to jump ship.
• Lack of growth or development opportunities: If employees don’t see a path to grow, learn and progress in their role, they’re often going to look for new opportunities at a different company.
• Poor work-life balance or burnout: Employees who are overworked, stressed or unable to balance their job with their personal life tend to leave for positions that offer more flexibility or a healthier balance. 
• Management or work environment issues: The saying “people leave managers, not companies” can be true. A bad boss or toxic work culture will drive good employees away. Lack of recognition, feeling wronged or conflicts with coworkers can all push someone to resign.

Of course, there can be personal reasons for an employee’s departure, such as moving to a new city, health issues, career changes or going back to school. Some turnover is also involuntary, such as being laid off or fired due to performance. But when we talk about improving turnover rates, we’re usually focused on voluntary reasons and what you can do as an employer to reduce those. Later on, we’ll discuss how to identify the specific reasons your employees are leaving and the strategies to reduce them. For now, just remember that turnover rate is vital to learn how well you’re retaining your team and hints at underlying workplace issues that might need some attention.

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Calculating and evaluating employee turnover rate

The formula is straightforward for calculating employee turnover rate. Typically, it’s calculated as a percentage using this basic formula:

Turnover rate = (# of employees who left during a specific period/average number of employees during the same period) x 100.

You can calculate this for any time period, but typically, it’s done for an annual or monthly time frame. While the method above is the standard way to determine turnover rate, you can plug and play based on your organization’s needs. For example, some companies prefer to distinguish between involuntary and voluntary turnover rate, so rather than compiling the overall number of departed employees, use separate formulas for employees who left involuntarily vs. voluntarily. This can be useful as the strategies used to address and help prevent voluntary turnover are different from those for involuntary. Moreover, you can get even more granular by analyzing turnover by attributes such as department, job role or tenure to pinpoint where problems exist.

Once you’ve calculated turnover percentage, you’re likely asking yourself if the number is good or bad. On its own, turnover rate doesn’t say much. Once turnover rate is compared to something like industry benchmarks or trends over time, you’ll be able to determine your level of performance. For example, a 10% turnover rate might be strong for an early-stage tech startup where the industry average could be higher, but a 10% quarterly turnover rate is a red flag in almost every instance. As a general rule of thumb, if your turnover rate is higher than industry benchmarks or the norm for your type of business, it could indicate underlying retention problems. On the flipside, if it’s much lower, you’re likely doing great, but it’s always good to follow the data and investigate any potential issues. 

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Impact of employee turnover

It’s easy to think that employee turnover only impacts headcount. But below the surface, turnover has real consequences for your company’s costs, performance and culture. Here are some of the major impacts of high turnover:

• Direct financial costs: When an employee leaves, the company has to spend time and money to replace them. Consider everything that goes into the hiring process: job advertising costs, recruiting or agency fees, interviewing time, background checks and then the time spent onboarding and training the new hire. Additionally, consider the fact that these costs are likely to increase alongside the seniority level hired. For highly specialized or senior roles, the costs associated with hiring will go up. 
• Lost knowledge and productivity: When employees with extensive experience leave, they take valuables with them. Institutional knowledge, skills, internal information and client relationships that are not easily replaced and could affect your organization’s standing against the competition. In some cases, departing employees can even take customers with them. For example, a beloved account manager leaves and some clients follow her to her new company, impacting your business’s bottom line. 
• Moral and workload: High turnover doesn’t just affect those who leave; it affects the employees left behind. When employees see their teammates leave, it can create a strong sense of instability. Plus, the workload often falls on the remaining team members until a replacement is hired and up to speed. This increased stress leads to unwanted aspects of work like burnout and feelings of being overworked. If your team is constantly shorthanded because of turnover, it can lead to a vicious cycle: high turnover leads to low morale, and low morale leads to more turnover. 

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Improving employee retention

Retaining good employees is critical to your organization’s success. Not only does stronger retention save costs and preserve knowledge, it also boosts team morale and productivity. But the question all of us are asking is how to achieve this and encourage employees to stay. The secret is to create an environment where people feel valued, engaged and see a future for themselves in the organization. This involves a combination of fair policies, growth opportunities and a positive culture. Let’s jump into some effective employee retention strategies.

• Hire the right people from the start and onboard them well. Retention begins from the start, even before an employee’s first day. Make sure your hiring process sets realistic expectations about the job and finds candidates who fit your company’s culture. Welcome them, train them and integrate them into the team. 
• Offer competitive compensation and benefits. While money isn’t the main reason people stay or go, it’s foundational. Conduct regular compensation reviews to ensure you’re paying fairly relative to your industry and location. Additionally, consider benefits and perks to ultimately ensure that you aren’t giving your talent a financial reason to leave. 
• Provide opportunities for growth and development. One of the most powerful retention tools outside of bolstering financial well-being is investing in your employees’ professional development. This can include training programs, workshops, classes and mentorship. Show employees how they can move vertically or broaden their skills in your organization.

Every organization is different, so the retention strategies that work best may vary. The key is to address the core needs: fair pay, growth, recognition and a supportive culture. It’s also worth noting that retention efforts don’t stop; they’re continuous. Retention is an ongoing effort and definitely doesn’t end with a pay bump and pizza party. 

In conclusion, employee turnover rate is a vital metric for any organization. By understanding what it is, how to calculate it and how your rate compares to benchmarks, you gain insight into your company’s health. High turnover can significantly hurt finances, morale and productivity, but it isn’t unfixable. With the right approach, you can improve employee satisfaction and loyalty. And by carefully analyzing the reasons behind turnover, you can target your efforts to where they’ll make the biggest difference and in sum, think purposefully. After all, your employees are your most valuable asset. Keeping your talent happy and on board is one of the best investments you can make. 

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Find more featured resources here:

• How recognition can help you flatline turnover
• Stop paying the price for employee burnout now
• New hire onboarding guide: How to build a long-term program

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