What Is Employee Turnover? Causes and How To Avoid

Employee retention is a key part of business success. When companies retain their employees, they can build a stronger company culture, save money, and keep operations running smoothly.

However, a high staff turnover—meaning a high percentage of employees leave in a given period of time—can lead to negative employee experiences and loss of revenue.

Human resources (HR) management professionals can implement strategies to improve a company’s retention rate. In this article, we discuss what employee turnover is, how to calculate your own employee turnover rate, and why employees might leave for a new job. We also cover retention strategies your business can use to decrease staff turnover.

What is employee turnover?

Employee turnover measures how many employees leave a company or need to be replaced in a given time period.

The employee turnover rate demonstrates how many employees left a company compared to its total number of employees. Low employee turnover indicates a small portion of employees left in a period of time, while a high turnover rate means a large portion left.

Turnover accounts for any employee who leaves the company, department, or position, depending on the rate you’re calculating. This includes employees who quit or leave for a new job in addition to terminations like firings, permanent layoffs, and downsizing.

You can calculate turnover for different time periods. For example, an HR professional might want to find the annual turnover rate for the entire company in a given year. Or they might want to find the quarterly or monthly turnover rates.

Alternatively, the HR professional could calculate the turnover rate for the sales department specifically. We discuss how to calculate employee turnover rates later in the article.

Understanding the causes of employee turnover is vital so you can address the underlying issues and retain more talent. By retaining talent, your business can save money and time and improve your company culture.

Retaining talent is cheaper and easier than constantly hiring for roles. The recruitment process can be costly and timely, involving listing the position, reading applications, interviewing candidates, sending offers, and onboarding new employees.

Voluntary vs. involuntary turnover

Two types of employee turnover in the workplace are involuntary and voluntary turnover.

Involuntary turnover is when a company terminates an employee or a role. Voluntary turnover is when an employee resigns or steps down from a role.

If you’re calculating employee turnover for certain positions or departments, you may include promotions or moves to other departments as a form of voluntary turnover.

One type of turnover isn’t necessarily better than the other. Sometimes, involuntary turnover (firing or laying off an employee, for example) is necessary for the overall health of a workplace. However, keeping track of each can help you determine your company’s weaknesses.

For example, a large voluntary turnover rate may indicate employees are unsatisfied with the workplace.

What are the main causes of voluntary employee turnover?

Voluntary employee turnover could be high for several reasons, but it usually includes employees being unsatisfied with one or many elements of the workplace, their position, or their benefits.

We cover some factors that could lead to a high turnover rate.

Lack of employee engagement and job satisfaction

An employee who doesn’t feel engaged and satisfied with their job is more likely to seek and find a new one. Different aspects of the job could engage employees, such as the company’s mission, team, workplace environment, and new challenges. And when employees don’t have these things keeping them happy with their jobs, they may quit.

Poor management and leadership

Management and leadership are a huge part of any company. Employees who feel the company suffers from poor management and leadership may be more likely to leave and find jobs with a better match to their preferred management style.

Inadequate compensation and benefits

No matter how much employees like their job, they want to be fairly compensated. If your compensation package—including benefits—doesn’t compare to the competition’s, an employee may find a job that better compensates them.

Limited career growth and development opportunities

Some employees are happy where they are, but many want to work their way into a higher position or a job with more responsibilities. When your company doesn’t have many opportunities for career development, employees may feel stuck. Almost 60% of employees say they’re likely to leave their company if it doesn’t offer professional development or career training to drive advancement.

Poor work-life balance

The COVID-19 pandemic and the Great Resignation had everybody talking about work-life balance. No matter how much someone might like their job, they still want to have a rich and full life outside work.

Some jobs require employees to dedicate more time to the role or to be available after work hours. But this isn’t a great fit for every employee, depending on their personal needs.

Unsatisfactory company culture or work environment

People spend a lot of time at work. Toxic work environments and company cultures can lead to employees wanting to get out as soon as possible. Symptoms of toxic work environments include gossipping at work, lack of transparency, casting blame, and division among departments.

Negative onboarding experiences

Onboarding is an employee’s first real impression of how their new job will go. When the process is messy or stressful, the new employee might go into the rest of the job with a negative perception of the company.

Reality doesn’t match expectations

Employees may get the wrong idea about a job or company from miscommunication or misunderstanding in interviews or job descriptions. They may start looking elsewhere if they feel they’re not doing the job they signed up for.

Receiving another competitive offer

When employees feel better valued elsewhere or will be compensated better, they’re likely to leap to a new company.

Getting burned out or overworked

Many of the reasons listed above can contribute to burnout. When employees have so much emotional, physical, and mental exhaustion that they can barely think about improving their work lives, they might decide to quit and find a new role.

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5 ways employee turnover impacts business

A high turnover rate can negatively impact your company in many ways. It can give your company a bad reputation and affect remaining employees and your bottom line.

Let’s review the primary negative impacts from high turnover.

Impacts of employee turnover:

1. Increases costs and reduces productivity
2. Leads to loss of institutional knowledge and skills
3. Reduces morale and engagement among remaining employees
4. Creates a negative workplace reputation
5. Causes business disruption

1. Increases costs and reduces productivity

High employee turnover can increase business costs and reduce overall productivity. When filling a new role, you have to spend resources to hire and train new employees.

The hiring process for one new employee costs a median $1,244 and $8,750 for executives.

Additionally, when you lose a productive team member, you lose the momentum and synergy you had before they left. Productivity metrics can demonstrate this phenomenon.

Bringing a new employee up to productivity standards can take considerable time. Onboarding alone takes about three months on average, and it can take around 12 months for a new hire to become fully productive.

2. Leads to loss of institutional knowledge and skills

When an employee leaves a company, they leave with institutional knowledge and skills.

Institutional knowledge is the collective understanding of the company’s workforce. This can include your company’s processes, programs, standards, and communication styles.

When new employees come on board, they must learn this institutional knowledge over time.

3. Reduces morale and engagement among remaining employees

Employee loss can also put stress on the remaining workforce. If a position goes unfilled for some time, other employees often have to step in to compensate for the loss, even continuing while the new hire is in training.

When a company loses a high amount of talent regularly, it can spark feelings of job insecurity and anxiety among staff, potentially leading to more employee loss.

4. Creates a negative workplace reputation

A high turnover rate can lead to a reputation that the company has unhappy employees.

When looking for a new job, employees often look for a good workplace environment, job security, and a strong work-life balance. If new talent sees that your company has a high turnover rate, they might look elsewhere.

5. Causes business disruption

As hard as the remaining staff might try, a hole in the workforce may lead to some loss in productivity.

If the employee didn’t finish all their deliverables before they left, their loss can disrupt client commitments and promised work. These disruptions can cause you and your workforce more stress and potentially lose revenue.

How to avoid voluntary employee turnover

Preventing employee turnover can help retain existing staff, boost your reputation, and improve your bottom line. We provide some employee retention strategies to create a happy and healthy workforce.

Offer competitive compensation and benefits packages

By offering competitive compensation, you can make staying with your organization more attractive for employees. Because you’re compensating them fairly and on par with other companies in the same industry, your employees won’t have a reason to leave for better financial rewards.

Create a positive work environment and workplace culture

You can foster a sense of belonging by creating a positive work environment and workplace culture. In a recent survey, 54% of people said they’d leave their job if they felt they didn’t belong at the company. By sharing values and objectives as a company, you can instill a better workplace culture.

Provide opportunities for professional development and growth

Employees believe that professional development is the No. 1 way to improve company culture, according to the 2022 LinkedIn Global Talent Trends report. Instilling a positive company culture can help you retain talent.

Offer flexible work arrangements

Flexible work arrangements, such as remote or hybrid work, help foster employee control of work-life balance.

According to the World Economic Forum survey, work-life balance is the most important factor in deciding to leave or stay at a job.

Encourage employee feedback and engagement

You can identify the biggest problems affecting your company’s retention by encouraging employees to give feedback.

For example, you can maintain an open-door policy so employees feel comfortable coming to you with their thoughts. You can also schedule one-on-one meetings or small group forums to give employees a specific space and time to provide feedback.

Doing so can help your employees feel seen and heard by management.

Provide regular recognition and incentives using a performance management system

Making your employees feel appreciated and recognized can help foster a sense of pride and community. In fact, workers who receive feedback at their job have a turnover rate 14.9% lower than employees who don’t receive feedback.

Incorporating a performance management system can help you implement regular and meaningful feedback. With a structured approach, you can positively reinforce the strengths of your team and help them grow in areas that need improvement.

Conduct exit interviews to learn more about why employees are leaving

When an employee decides to leave, conducting an exit interview will help you probe for underlying causes. If you start seeing the same problems repeatedly, you can work to address them.

Create an effective onboarding experience

To make a good first impression, create a positive and effective onboarding experience that lets your employees hit the ground running and feel comfortable.

Only 12% of employees think their company does a good job of onboarding new hires, so having a great onboarding experience can help your company stand out.

Ensure the impression of the company and job communicated is realistic, not an oversell

Never lie or inflate the truth in job listings or interviews. It’s best to be honest about the position and the company upfront so candidates don’t get a false impression of the job. Creating a realistic job preview (RJP) can help.

Treat employees like people

Employees want to be treated like people—not numbers. Many of the changes listed above, such as offering flexible working plans and compensated benefits packages, can help. Additionally, ensure your managers treat employees with empathy, respect, and understanding.

How to calculate employee turnover

To calculate employee turnover for a given period, you need three pieces of data:

• The number of employees at the start of the period
• The number of employees at the end of the period
• The number of separations during the period

First, find the average number of employees during this time period. You can do this by adding the number of employees at the start of the period with the number of employees at the end of the time period and dividing this number by 2.

For example, if your company had 58 employees at the start of a quarter and 52 employees at the end, you’d add 58 + 52 to get 110, then divide this number by 2 to get 55.

Then, divide the number of separations by the average number of employees. A separation is any time an employee separates from their role at a company, such as quitting or being fired.

In this example, five people quit, and one person was laid off for a total of six separations. So, you’d divide 6 by 55 and then multiply it by 100 to get the rate as a percentage.

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(6/55) x 100 = 11%

In this example, your company would have an employee turnover rate of 11% for the quarter. Whether this is a “good” or “bad” turnover rate depends on several factors, such as the industry and time of year.

For example, the average global turnover rate between July 2021 and June 2022 was 10.6%. However, certain fields had higher turnover rates. Human resources was the highest at 14.6%, followed closely by research at 13.1%.

Average turnover rates also vary by year as the economy changes.

In 2021, when the COVID-19 pandemic spurred the “Great Resignation,” the BLS reported a separation rate of 47.2%. Separation rate and turnover rate are often used interchangeably.

Reduce employee turnover with Upwork

Calculating your employee turnover rate can help you understand how you fare in retaining employees. A high turnover rate may indicate problems with company culture, compensation, or work-life balance.

By working to prevent employee turnover, you can retain more employees, benefitting your bottom line and overall productivity.

To learn more about how to reduce your employee turnover, work with an employee engagement specialist on Upwork and help retain top talent. Get started today.