Employee Turnover Rate: How to Calculate + Tips To Improve it

The job market is only getting more competitive. Retaining top talent is crucial for businesses to thrive. Employee turnover, referring to the rate at which employees leave a company, can have significant financial and operational consequences. 

This article offers a comprehensive guide on how to calculate your employee turnover rate and lists strategies to effectively reduce it. By understanding the impact of turnover and implementing the right strategies, organizations can foster a positive work environment, enhance employee engagement, and achieve long-term success.

What is employee turnover rate and why should you care?

Employee turnover rate refers to the percentage of employees who leave a company within a specific time frame, typically a year. While some level of turnover is inevitable, excessive turnover can pose significant challenges and financial burdens for businesses.

Calculating employee turnover rate is crucial for organizations to gain insights into their workforce dynamics and identify potential areas of concern. It serves as a valuable metric for assessing the overall health and stability of a company. A high turnover rate can indicate underlying issues such as low employee morale, ineffective management practices, or lack of professional growth opportunities. Conversely, a low turnover rate often reflects a positive work environment, engaged employees, and a strong company culture.

Understanding the costs associated with high turnover is essential for businesses to prioritize employee retention strategies. The financial implications of employee turnover extend beyond the direct costs of recruiting and training replacements. Disruptions in productivity, loss of institutional knowledge, and damage to the company's reputation can further compound these costs. Organizations that experience chronic high turnover rates may struggle to attract and retain top talent, hindering their ability to compete effectively in the market.

Benefits of a healthy turnover rate

A healthy turnover rate has numerous benefits for businesses. A stable workforce fosters a sense of continuity, enhances team collaboration, and promotes a culture of innovation. Engaged employees are more productive, creative, and committed to the organization's goals. Low turnover rates also contribute to a positive employer brand, making it easier to attract high-quality candidates and build a robust talent pipeline.

In conclusion, employee turnover rate serves as a vital indicator of an organization's overall health and performance. By calculating and analyzing turnover rates, businesses can make informed decisions to address any underlying issues and implement effective retention strategies.

Prioritizing employee engagement, fostering a positive work environment, and investing in professional development opportunities are key elements in reducing turnover and building a sustainable workforce that drives long-term success.

Crystal Black, Sr. L&D Specialist at AAA, shares the ingredients for strong employee retention.

How to calculate employee turnover rate

Calculating employee turnover rate involves a simple formula that provides valuable insights into workforce stability. To determine the turnover rate, divide the number of employees who departed from the company during a specific period by the average number of employees during that same period. Multiply the result by 100 to express it as a percentage.

For instance, if 10 employees left the company within a year and the average number of employees throughout that year was 100, the employee turnover rate would be calculated as (10 / 100) x 100 = 10%. This indicates that 10% of the workforce turned over within that year.

This calculation can be performed for various time frames, such as monthly, quarterly, or annually, depending on the organization's preference and the desired level of analysis. By tracking turnover rates over time, businesses can identify trends and patterns, allowing them to proactively address any underlying issues that may be contributing to employee departures.

What is a good or bad employee turnover rate?

A good employee turnover rate is one that is sustainable for your business. This means that the rate of employees leaving your company is not so high that it's causing problems, but it's also not so low that it's preventing your company from growing and evolving. The ideal turnover rate for your company will depend on a number of factors, including the size of your company, the industry you are in, and your company culture.

As a general rule of thumb, a turnover rate of around 15% is considered to be healthy. This means that for every 100 employees, 15 will leave the company each year. However, this number can vary significantly from industry to industry. For example, the turnover rate in the tech industry is typically higher than the turnover rate in the manufacturing industry.

A high turnover rate can be a sign of problems within your company. It can indicate that employees are unhappy with their jobs, that they are not being paid enough, or that they do not feel like they are being given enough opportunities for growth and development. A high turnover rate can also be costly for businesses, as it can lead to lost productivity, increased recruiting and training costs, and decreased morale.

On the other hand, a low turnover rate can also be a problem. It can indicate that employees are not being challenged enough, that they are not being given enough opportunities for growth and development, or that they are not being paid enough. A low turnover rate can also make it difficult for businesses to adapt to changing market conditions, as it can be difficult to bring in new employees with the skills and experience that the company needs.

The best way to determine what is a good or bad turnover rate for your company is to talk to your employees and get their feedback. Ask them what they like and dislike about their jobs, and what they would like to see changed. You can also conduct exit interviews with employees who are leaving the company to learn more about why they are leaving.

By understanding the reasons behind employee turnover, you can take steps to reduce turnover and create a more positive work environment. This will benefit your employees, your company, and your bottom line.

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11 tips for reducing employee turnover (+ real-life examples)

High turnover affects employee morale and significantly impacts productivity and profitability. So, organizations need strategies designed to enhance employee satisfaction and loyalty, helping teams stay longer and feel more engaged and valued during their tenure. From hiring the right people to fostering a supportive work environment, these tips provide a comprehensive approach to building a more stable and motivated workforce.

1. Hire the right employees from the start

This may seem like a no-brainer, but it's essential to ensure you're hiring people who are a good fit for your company culture and have the skills necessary to succeed in their roles.

Utilize behavioral interviews and personality assessments to better predict how potential hires might fit within your team. For example, Zappos famously offers new hires a financial incentive to quit after the initial training period, ensuring only those truly aligned with the company’s ethos stay.

2. Create a strong onboarding process

The onboarding process is a critical time for new employees. Make sure you have a well-structured onboarding process that helps new employees get acclimated to the company and their roles. This will help them feel more confident and supported in their jobs, which will reduce the likelihood of them leaving.

SAP’s onboarding programs focus on building a strong early connection between the employee and the company, reducing early turnover.

3. Set clear expectations and provide feedback

Employees need to know what is expected of them to do their jobs well. Regularly provide feedback so that employees can understand where they stand and make any necessary improvements.

Regular one-on-ones and performance reviews can help maintain this clarity by letting employees know how they’re doing and where they can improve. Adobe, for instance, replaced annual reviews with ongoing check-ins, resulting in a 30% decrease in voluntary turnover.

4. Create a positive work culture

A positive work culture is one where employees feel valued, respected, and supported. When employees feel good about their jobs and the company they work for, they're less likely to leave.

Google’s emphasis on open communication and inclusion has set a standard in fostering a positive workplace that many others aspire to.

5. Foster deeper employee connections

Building meaningful relationships in the workplace is essential for creating a supportive environment where employees feel connected and engaged. Colleague Connect is a tool designed to deepen these connections beyond traditional mentorship frameworks, promoting a culture of continuous learning and collaboration. We’ll explore how Colleague Connect works in detail in the following section.

6. Offer competitive compensation and benefits

Employees need to feel like they're being compensated fairly for their work. While salary is important, benefits such as health insurance, retirement plans, and paid time off are significant factors in employee retention.

Netflix’s policy of allowing employees to take as much holiday as they want, when they want, exemplifies a trust-based benefit approach that can boost retention.

7. Invest in employee training and development

Employees want to feel like they're growing and developing in their careers. Provide opportunities for employees to learn new skills and improve their knowledge.

​​LinkedIn offers employees a yearly allowance for professional development courses, signaling a commitment to employee growth, which enhances loyalty and job satisfaction.

8. Recognize and reward employees

When employees feel appreciated for their work, they're more likely to stay with the company. Regularly recognize and reward employees for their contributions.

Simple recognition tactics like ‘Employee of the Month’ awards or more substantial profit-sharing plans can increase feelings of appreciation. Salesforce uses a platform called Trailhead for employee empowerment, gamifying career progression and openly rewarding achievements.

9. Promote from within

When employees see that there's a path for advancement within the company, they're more likely to stay. Promote from within whenever possible to show employees that you value their contributions and want them to grow with the company.

Hilton Hotels has a high rate of internal promotions, which not only saves on recruitment costs but also enhances employee engagement and retention.

10. Offer flexible work arrangements

In today's world, many employees are looking for flexible work arrangements, such as the ability to work from home or set their own hours. Offering flexible work arrangements can help you attract and retain top talent. 

Allowing telecommuting, flexible schedules, and part-time options can reduce turnover. Dell reports that its flexible work options have saved millions in turnover-related costs.

11. Be open to feedback

Regularly ask your employees for feedback on their jobs and the company. This will help you identify any areas where you can improve and make changes that will make your employees happier and more likely to stay.

Creating channels for honest feedback, like regular surveys or open-door policies, helps build a culture of trust. At Patagonia, management actively encourages and acts on employee feedback, which contributes to their high retention rates.

How Colleague Connect enhances employee relationships

• Inclusive learning environment: Colleague Connect moves away from traditional mentor-mentee roles, allowing for more dynamic and accessible relationships. This flexibility is particularly valuable in catering to the diverse needs and learning styles of employees across the organization.
• Democratized mentorship: By eliminating hierarchical labels, Colleague Connect enables everyone to learn from one another on an equal footing. This approach fosters a sense of mutual respect and openness, making it easier for employees to seek help and share knowledge without the barriers often associated with conventional mentorship.
• Personalized connections: The platform facilitates the formation of relationships based on common skills, career goals, or personal traits like location and department. This tailored matching ensures that connections are relevant and meaningful, enhancing the likelihood of sustained engagement and mutual benefit.
• Endless opportunities for growth: Colleague Connect ensures that every employee has the chance to find and connect with others who can help them grow. The platform's structure supports forming multiple learning partnerships, thus expanding the individual's network and opportunities within the company.
• Customizable interaction templates: Whether the goal is to facilitate cross-department interaction, streamline onboarding, or address specific learning needs, Colleague Connect provides customizable templates. These templates incorporate best practices to help users achieve their objectives efficiently and effectively.

The bottom line

Employee turnover can be a costly problem for businesses of all sizes. The cost of replacing an employee can be as high as 200% of their annual salary. This includes the cost of advertising, recruiting, hiring, and training a new employee. In addition to the financial costs, employee turnover can also disrupt your business operations, damage your company's reputation, and make it difficult to attract and retain top talent.

Reducing employee turnover should be a top priority for all businesses. Employees are more likely to stay with a company if they feel happy and engaged at work. Follow the tips above to create a positive and supportive company culture.

Book a 15-minute demo with our team to see how Together can help you achieve a healthy turnover rate.