Employee turnover is natural for organizations across industries. However, high employee turnover within a company, department, or team may indicate low morale or poor work culture. A company’s turnover rate can also provide insights into employee happiness, the success of internal processes within the organization, and more.
In this article, we’ll explore the topic of employee turnover, show you how to calculate the employee turnover rate, view how you can analyze your turnover rate, and see what factors drive employees to leave teams and organizations.
- What is employee turnover?
- Why does employee turnover matter?
- Voluntary vs. involuntary turnover
- How do you calculate your employee turnover rate?
- How to analyze your turnover rate
- What causes high employee turnover rates?
What is employee turnover?
Employee turnover refers to the number of employees who leave a company during a specified period—usually in one year. Turnover can also apply to subcategories within an organization such as departments, teams, or specific demographic groups. The employee turnover rate usually includes those who leave their positions involuntarily through layoffs and termination or voluntarily due to various factors. A low turnover rate indicates that employees frequently stay in their jobs for longer while a high turnover rate means that many are leaving the company.
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Why does employee turnover matter?
When an organization has high employee turnover, specific teams or departments may become less productive, miss out on new clients or sales opportunities because of staffing shortages, or have to deal with the additional expense of recruiting replacement workers. High employee turnover has many serious consequences, so it’s important that businesses actively work to retain talent by offering competitive wages, flexible work options, growth opportunities, and a healthy workplace culture.
“If your turnover rate is high and lots of people are leaving simultaneously, it can result in extra expense in recruiting a replacement, lower morale for those who are left, shortage of skilled and knowledgeable workforce, loss of belief in the team’s capabilities.”– Shweta & Kelly Main, Forbes Contributors
Voluntary vs. involuntary turnover
Voluntary employee turnover occurs when an individual chooses to leave a company by resigning or retiring. Many employees will decide it’s time for a change and leave a company at some point in their career. Employees may voluntarily leave a company due to insufficient pay, unfair work practices, opportunities at other companies, or policies that don’t align with their personal needs.
Involuntary turnover occurs when a company asks an employee to leave. This may be due to budget cuts, layoffs, poor performance, changing business needs, or reductions in the workforce.
How do you calculate your employee turnover rate?
The first step to calculating your employee turnover rate is determining the total number of employees at your company. Include all types of employees in this number—except for temporary hires or employees on temporary leaves; incorporating these employees into your calculation will stew your turnover rate and make it higher than it actually is.
Next, decide on the period for which you want to calculate the turnover rate. Most companies do an annual calculation, but you can choose to calculate this rate on a quarterly or bi-yearly basis, too. Determine the average number of employees who worked at the company during that period and find out how many left, regardless of whether that position has since been filled. For instance, you may have an average of 200 employees in 2022 and 39 who left during that period, none of which were temporary hires or on temporary leave.
The final step to calculate the employee turnover rate is to divide the number of employees who left (39) by the average number of employees in the pre-determined timeframe (200). Multiply the result by 100 to get the turnover rate for your company. In this case, the equation would be (39/200) x 100 = 19.5. The company’s turnover rate in this case is 19.5%.
How to analyze your turnover rate
Here are a few answers to some of the most pressing questions related to employee turnover. When analyzing your turnover rate, ask yourself these questions to determine the areas in which your company should strive to make improvements:
- What is a good employee turnover rate?
- Which employees are leaving?
- When are employees leaving?
- Why are employees leaving?
1What is a good employee turnover rate?
When analyzing your turnover rate, the first question you should ask is what a good turnover rate is. What is considered a low turnover rate varies by industry and region. Data from LinkedIn suggests that the average turnover rate across industries and sectors is about 10.6% overall. If your company’s turnover rate is higher, it may suggest that issues are causing employees to leave the company prematurely.
When assessing whether or not your employee turnover rate is good, remember that there are factors that contribute to an increasingly high rate that don’t involve poor work culture. For instance, situations like recessions or the COVID-19 pandemic made turnover rates higher than ever in recent years. Turnover rates also differ across industries. For example, sectors like retail and hospitality naturally experience higher turnover rates. Compare your company’s turnover rate to other businesses within your industry to determine whether it’s high, low, or on par with the industry standard.
2Which employees are leaving?
It’s important to analyze which employees are leaving the company to see if there are any patterns. For example, if your company’s sales team has a 50% turnover rate in one year, it could indicate that there are team-specific problems that should be addressed. When you find out who is leaving, host one-on-one meetings with individuals in similar positions or on the same team to ask for their feedback. You may find out what issues need to be resolved to retain others in related roles.
Determine whether employees are leaving voluntarily or involuntarily as well. For instance, major company restructuring that caused involuntary layoffs earlier in the year may not be a good indicator of issues with company culture or employee morale.
3When are employees leaving?
Finding out when employees are leaving is one way to analyze turnover patterns. Determine what times of year employees are leaving the company for other opportunities. Then, develop a strategy for incentivizing employees to stay during these times. For example, if turnover rates are highest around the winter holidays, it may be the best time to give out bonuses, offer promotions, or host one-on-ones with employees to discuss career growth opportunities that will have them excited for the new year.
4Why are employees leaving?
You should also analyze what is causing high employee turnover so you can address any issues and lower the turnover rate. For instance, if new hires are leaving at disproportionate rates, the company might need to reassess its onboarding processes or offer additional training. If managers or senior employees are leaving, it may indicate that the company needs to offer professional development opportunities.
What causes high employee turnover rates?
Some common reasons for turnover include:
- Lack of opportunities for career growth: High employee turnover rates are correlated with poor career development opportunities. Employees want assurance that they’ll have opportunities to achieve their professional goals and often depart when they feel they are being held back.
- Toxic work environments: A toxic work environment is one where negative behaviors like manipulation and bullying are synonymous with the culture. Stressed employees in harmful or unethical environments are bound to leave eventually.
- Competitive opportunities elsewhere: Companies must remain vigilant in a competitive market. Research shows that employees will remain loyal when offered competitive compensation and benefits that match or exceed the market standards and reflect employees’ skills, performance, and contributions.
- Lack of work-life balance: Work-life balance refers to maintaining a healthy relationship between your work and personal life. Employees who have a healthy work-life balance see improved performance and are less likely to leave the company. Employees with poor work-life balance may bring their work home, struggle with relationships, and experience burnout.
- Lack of opportunities for hybrid and remote work: Flexible work arrangements provide employees with the option to do their tasks anywhere they can in certain circumstances. Remote and hybrid work is here to stay, and companies that don’t want to adapt to this new norm are at risk for high turnover rates.
Employee turnover may not seem like a major problem, but it can imply that there are underlying issues within a company. Calculate your organization’s employee turnover rate and analyze the factors that contribute to high turnover so you can work to retain talent at your company for years to come.
Better yet, host regular meaningful team sessions and one-on-ones with employees to identify issues before they result in high turnover rates. Use Fellow to build great meeting habits and foster a feedback culture that empowers everyone to do their best work today!