Employee turnover can have a significant impact on a company’s overall performance, affecting productivity, morale, and costs. A high turnover rate can signal that deeper issues exist within the organisation. That’s why understanding how to measure turnover and pinpoint its causes is essential for maintaining a stable and motivated workforce.
In this article, we’ll cover how to calculate employee turnover, what qualifies as a high turnover rate, the main reasons behind it, and actionable tips for reducing turnover and improving employee retention.
What is employee turnover?
Employee turnover represents the number or percentage of employees who leave a company within a certain period, usually a year and are subsequently replaced by new hires.
Turnover is classified into two types: voluntary and involuntary. Voluntary turnover occurs when employees choose to leave, often for new opportunities, a different role, or retirement. In contrast, involuntary turnover happens when an employee is dismissed due to factors such as poor performance, behavioural issues, or a mismatch with the company’s values or culture.
How to calculate employee turnover rate
To calculate the annual employee turnover rate, start by adding the number of employees at the beginning of the year to the number you had at the end of the year. Then, divide that sum by two to get the average number of employees for the year. Next, divide the total number of employees who left during the year by the average number of employees, and multiply the result by 100 to get your turnover rate.
Use the same formula for a monthly turnover rate but over a shorter period. First, determine how many employees are left during the month, then divide that number by the average number of active employees for the month, and multiply the result by 100.
What is considered a high employee turnover rate?
A high employee turnover rate is generally considered to be anything above 20% annually. However, this can vary by industry, company size, and role type. For example, industries like retail and hospitality often experience higher turnover rates, sometimes exceeding 30%, due to the nature of the work.
On the other hand, more specialised industries like healthcare or technology may view a rate above 10% as high. In general, if turnover exceeds industry averages or leads to noticeable disruption in business operations, it’s considered high and may signal underlying issues that need to be addressed.
What causes a high employee turnover rate?
The reasons for a high employee turnover rate differ across companies. So, it’s important to conduct exit interviews to get a better understanding of the specific root cause. That said, there are some general triggers that often cause a high turnover rate.
Lack of recognition
Employees who consistently put in their best effort but rarely receive acknowledgement for their hard work are unlikely to remain with their employer for an extended period. Regardless of pay or benefits, a lack of recognition results in disengagement and dissatisfaction. This will be quickly reflected in a higher employee turnover.
Cultural misalignment
Company culture is the foundation of an organisation’s success, and nothing pushes employees away faster than a culture that falls short of their expectations. Building cultural alignment begins by hiring individuals who fit the type of workplace you aim to create rather than focusing solely on skills and qualifications.
Poor leadership
Poor leadership can stem from individual behaviour or broader issues within your company culture. Employees often feel undervalued and disengaged when leaders fail to provide clear direction, support, or recognition. Micromanagement, lack of empathy, and poor communication create a stressful work environment, leading to frustration and dissatisfaction.
Burnout
Burnout is another leading cause of high employee turnover. When employees consistently face excessive workloads, long hours, and a lack of work-life balance, they become physically and mentally exhausted. This chronic burnout drives employees to leave, either seeking better opportunities elsewhere or quitting without a plan just to escape the stress.
No career development opportunities
Companies wouldn’t hire someone who lacks ambition or the desire to grow, so it’s unrealistic to expect a driven employee to stay with a company that offers no opportunities for advancement. Employees who are eager to develop their skills and progress in their careers will quickly become disengaged if they feel stuck in their current roles without a clear path forward.
Tips for reducing high turnover rate
A high turnover rate can be easily prevented by making improvements in management, career development opportunities and the overall well-being of the employees.
Hire the right employees
The key to having the right employees on your team is identifying them during the hiring process. By taking the time to assess whether a candidate will fit well with your company culture, you can increase the chances of long-term retention.
Reviewing a candidate’s length of service with previous employers in similar roles can also give you insight into their potential tenure with your company.
Offer competitive salary and benefits
It’s crucial to offer a competitive starting salary and benefits matching labour costs and living costs. Since labour laws frequently change, it may be wiser to outsource these tasks to a PEO provider with the expertise to guarantee local compliance.
If you’re aiming to expand globally, an EOR can help manage global payroll, compliance, and other complexities. Providers like Native Teams offer both PEO and EOR services, ensuring compliance and top-tier benefits for your employees, whether you’re hiring locally or globally.
Show appreciation
Reducing turnover can be as simple as showing appreciation. A sincere “thank you” or a note of recognition, whether verbal or written, for the hard work employees do daily can make a big difference.
Offering new opportunities is another effective way to acknowledge their efforts. Managers play a crucial role in this — employees who receive positive feedback from their managers are much more likely to stay engaged, and only a small percentage of them are actively seeking new jobs.
Prioritise work-life balance
Flexible schedules and remote work options can help employees achieve a better work-life balance. To make work-life balance a core part of company culture, ensuring that everyone feels comfortable using these policies designed to enhance employee satisfaction is essential.
Without this clarity, these initiatives could lead to resentment among those who don’t use them and guilt among those who do. To prevent this, company leaders should emphasise that work-life balance is a priority for everyone and practise achieving a great work-life balance themselves.
Allow opportunities for career development
Take the time to map out individualised career paths that include measurable goals, steps for professional development, and performance benchmarks that align with opportunities for advancement. Providing a transparent timeline for these milestones, along with ongoing feedback and support, shows employees that their growth is a priority.
Offering tailored development opportunities, such as training programs, mentorship, or skill-building workshops, additionally reinforces the company’s commitment to helping employees succeed.
To wrap up
From hiring the right employees and offering competitive salaries to fostering a culture of appreciation, work-life balance, and career development, there are numerous ways to reduce turnover.
Prioritising your employees’ well-being and growth not only improves retention but also strengthens your company’s long-term success. Implementing these strategies will help ensure that your team remains motivated, loyal, and invested in your company’s future.
