What is employee turnover?
Employee turnover refers to the rate, expressed as a percentage, at which employees leave an organization over a certain period of time. Excluding internal promotions or transfers, employee turnover can stem from a variety of causes. Voluntary separation from an organization is when employees initiate their departure. Involuntary separation is when the departure is initiated by the employer.
Some common driving factors behind employee turnover include:
- Job opportunities
- Family changes
Average turnover rates
Average employee turnover rates can vary significantly across industries. For example, a retail company with peak holiday traffic would likely see a larger turnover rate due to hiring seasonal or temporary employees. In contrast, an accounting firm would likely see a much lower turnover rate due to the stable nature of the company’s business.
According to the BLS, the average turnover rates by industry are:
- Manufacturing: 39.9%
- Trade, transportation and utilities: 54.5%
- Information: 38.9%
- Professional and business services: 64.2%
- Education and health services: 37.3%
- Leisure and hospitality: 84.9%
- Government: 18.1%
- Financial activities: 28.5%
Related: 10 Recruiting Strategies for Hiring Great Employees
Why is it important to calculate turnover rates?
Calculating employee turnover rates is an important HR tool to assess various aspects of your business, such as management, procedures and organizational culture. It can help you identify trends, gaps and opportunities for improvement in your organization, leading to better company productivity and growth.
Specifically, addressing the root causes of high employee turnover can result in the following:
- Effective hiring process: Identify a productive hiring process to attract and retain culturally aligned and quality job candidates
- Improved culture: Address company culture issues such as inclusivity, communication and community
- Fair compensation: Create fair and competitive compensation to reward loyal employees
- Employee satisfaction: Retain motivated and loyal employees and avoid overworking employees due to labor shortages
- Improved cost-efficiency: Reduce costs related to hiring and training employees, which can cost over $4,000 per employee
How to calculate turnover rates
Turnover rates are generally calculated for monthly, quarterly and annual time periods to show seasonal and overall employment trends. Turnover calculations can also be broken into specific areas, such as new hires, and voluntary or involuntary turnover, to further pinpoint and resolve underlying issues.
- Calculate the average number of employees for a time period: (# of employees at the beginning of the time period) + (# of employees at the end of the time period) / 2
- Divide: (# of employees who separated from the company during that time period) by (average # of employees)
- Multiply: (# calculated in step 2) x 100 = turnover rate
On March 1, Company A had 30 employees. On March 31, Company A had 35 employees. During that month, 3 employees left the company.
- Calculate the average number of employees:
- 30 + 35 = 65
- 65 divided by 2 = 32.5
- Divide: 3 (number of employees who left) / 32.5 (the average # of employees) = 0.0923
- Multiply: 0.0923 x 100 = 9.23%
First-year turnover rate
To calculate the first-year turnover rate for new hires, use the number of separated employees who were employed for less than a year in your calculation. The average number of employees is replaced by the total number of separations for one year.
- Calculate: Total number of employee separations within a 12-month period
- Divide: (# of separated employees who worked at the company less than 1 year ) / (# of all separations)
- Multiply: (# calculated in step 2) x 100 = turnover rate
- Calculate: During 2022, five new hires and seven employees left the company (total separations)
- Divide: 5 (# of separated employees who worked at the company less than 1 year) / 7 (total separations) = 0.7143
- Multiply: 0.7143 (# calculated in step 1) x 100 = 71.43%
Tips for reducing employee turnover rates
If your turnover rate is overly high, here are some tips to increase overall employee job satisfaction and improve retention:
1. Improve your hiring strategy and onboarding process
Studies show that strong hiring and onboarding can improve retention by up to 82%. Assess your hiring and onboarding practices and use strategies such as competency screening, behavior testing and a thorough interview process to best identify candidates who match your company culture and needs. Develop an effective onboarding process with mentoring and training that promotes employee growth and connection.
Related: New Hire Onboarding Checklist
2. Offer competitive compensation packages
Fair compensation and regular raises can show employees that they are valued and have room to grow at your company. Competitive salaries and comprehensive benefits, including health insurance, 401(k) plans and paid time off can be enhanced with additional perks such as remote work options and wellness incentives. These additional perks can attract job candidates, improve company culture, support work-life balance and promote loyalty.
3. Provide professional development opportunities
Learning and growth opportunities are major factors in employee loyalty, with 94% of employees willing to stay longer with a company that invested in their professional development. Cross-training and development programs give employees the skills to take on more responsibility, grow as professionals and develop their potential within your organization.
4. Recognize employees
Recognition boosts productivity and increases retention rates as employees who feel valued and are rewarded for their work are more likely to stay with a company. Develop a recognition program that offers incentives such as bonuses, celebrations for employee successes, or team quarterly events and parties.
5. Measure employee satisfaction
Highly satisfied employees are more passionate about helping your business achieve its goals, motivated to grow and more fulfilled in their roles. There are a variety of methods to measure employee satisfaction, including:
- Employee satisfaction surveys
- Employee net promoter score
- Individual meetings
- Specialized software
Read more: How to Reduce Employee Turnover
6. Foster a positive company culture
By putting in the effort to create a positive company culture that promotes growth, celebrates employee success and fosters a community of inclusion and connection, you can improve employee satisfaction and loyalty. Strategies for improving company cultures, such as team building, strong organizational values and empowered employees, can make a big difference in the turnover rate.
Related: Establishing an Incredible Team Culture: Eight Things to Try
Frequently asked questions about turnover rates
What is a healthy turnover rate?
A healthy turnover rate varies across businesses and industries. To determine a healthy turnover rate for your business, compare your calculations with the average rate within your industry. If your rate is higher than the average, you may need to address internal management issues.
Is employee turnover always bad?
Some employee turnover due to retirement, changing career paths or other life changes is a natural progression in your business’s workforce. High employee turnover rates are a sign that there are underlying issues within your organization, such as misaligned employees or poor workplace culture.
What’s the average employee tenure?
According to the BLS, workers stay with their employers for an average of 4.1 years. Tenure tends to increase in demographics of higher age ranges, with 55.5% of workers 65 years and older having 10 years or more tenure with their current employer.