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All businesses experience employee turnover. After all, nobody works forever. However, understanding your business’ rate of employee turnover is important to its overall success. Businesses with high turnover are chronically short-staffed. The remaining employees experience worse working conditions, making it harder to attract new talent, and that creates a cycle that can spell disaster for the company. A reasonable rate of turnover varies dramatically depending on the organization and industry, so it’s important to understand what kind of turnover your business should be aiming for.
Here's what you need to know about employee turnover, how to calculate it, how to understand whether your employee turnover is too high, and what to do about it.
What is employee turnover?
Employee turnover, or staffing turnover, measures how many employees leave in a particular time period. It refers to all employees who have left the business, including people who were fired or laid off or who left for other reasons, such as transferring, retiring, or changing to a different career.
How is employee turnover calculated?
To calculate employee turnover, divide the number of people who left the company in a time period by your average number of employees in that time period. Then, multiply by 100.
Here’s an example. Say you started the month with 30 employees. Five left and you replaced four of them. Your monthly total employees is 29. Divide 5 by 29, and you get .17. Multiply by 100, and you find that your monthly employee turnover is 17%.
Only include employees who have permanently left to the best of your knowledge. Temporary employees or employees on leave should not be counted as staff turnovers.
Should you calculate voluntary and involuntary staff turnovers separately?
All organizations experience both voluntary and involuntary turnover. Voluntary turnover is any situation in which an employee chooses to leave. Involuntary turnover is when it is the employer's choice to terminate the relationship.
Does the reason matter when you're thinking about how many employees have left your company? Possibly. It can be helpful to calculate these kinds of staff turnovers separately. If you find that your company has many more employees that leave by quitting than firing, or vice versa, it may be an opportunity to examine how you’re handling employee relations.
This is also a chance to more closely examine the circumstances under which people leave your company. This kind of investigation can be hugely beneficial when it comes to reducing employee turnover and improving work experiences at your company.
What is a good employee turnover rate?
The expected employee turnover for a business depends on what kind of company it is. Some industries, such as hotels or restaurants, have higher turnover than others, like government jobs or white-collar industries. For instance, the monthly employee turnover rate in fast food restaurants was 144% this year. So, if a fast food restaurant typically staffs about 30 people, 43 people left the team in just one month.
If you're in the fast food industry and comparing yourself to most other industries, you probably think your turnover is terrible at a rate of over 100%, but it’s actually very reasonable for your business. Acceptable turnover for your company depends entirely on what line of work you're in.
A variety of factors specific to your business can also affect turnover. For instance, if you’re doing business somewhere with a high seasonal population, such as a college town, you'll likely see higher turnover than similar companies in places with more stable populations.
The best way to understand whether your employee turnover is acceptable is to compare your turnover to that of businesses that are as similar to yours as possible.
Is 20% employee turnover high?
For the vast majority of industries, a turnover of 20% is reasonable but on the higher side of what’s acceptable. The majority of organizations have a turnover rate between 12% and 20%. Of course, as discussed above, many industries have much higher turnover rates.
Whether the rate is too high for your business depends on the employee turnover cost. For companies that invest little into training and recruiting their workers, losing an employee isn't a significant loss. However, for companies that aggressively search for the best talent and put a lot of energy into training them, a high turnover rate can be devastating for the company's bottom line.
In general, businesses that employ highly technical and experienced workers would see 20% turnover as the highest they would be willing to tolerate, whereas businesses employing employees with less experience and training are typically OK with higher turnover rates, even rates over 100%.
What causes employee turnover?
Employee turnover is a perfectly natural part of any business. However, understanding the reasons employees leave is valuable. Knowing about your company's employee turnover can enable you to anticipate and reduce employee turnover. Here are a few of the primary reasons employees leave a company.
- Retirement
Retirement is one of the most predictable causes of turnover, but there can still be unexpected spikes. In the third quarter of 2020, a whopping 28.6 million baby boomers retired, 3.2 million more than in the same quarter of the previous year. Global events like a pandemic or economic events like recessions can cause employees who may be close to retirement age to retire early or keep working longer. Anticipating these swings in retirement can help companies plan for them. - Employee shortages
When everybody is scrambling for employees, the workers have the upper hand. This is a strong driver of employee turnover up and down the economic ladder, from low-wage employees seeking out the restaurant that pays the most to highly skilled technical professionals being head-hunted by competing firms. It's not just money that employees are after either. Employees are leaving for better hours, more extensive benefits, and flexibility. If you know what your employees are likely to leave for, you’re more likely to find ways to keep them. - Lack of opportunity
If there's nowhere within a company for an employee to grow into, they'll grow out of the company. There's certainly some degree to which all companies will experience this kind of progress, but whenever possible, it's beneficial to give employees space to move up in the company instead of losing them. Providing training or financial assistance for education that allows employees to fill new roles is a powerful way to keep the talent you've invested in. - Unhappy at work
Not every employee is a good fit for every job. Some employees find their role unsatisfactory, regardless of how good the company is at acclimating and training them. Some employees become tired of their jobs even though little has changed. However, factors like a toxic work environment, poor management, and chronic overwork can make even loyal employees think about leaving. Learn how your employees feel about their work and where they think there could be improvements before their dissatisfactions drive them to work somewhere else. - Poor work-life balance
Some employees are perfectly happy at work, but their work is making it impossible for them to be happy elsewhere. Erratic schedules, long hours, physically or mentally taxing work, or excessive stress can make it difficult for employees to thrive in their home life. Over time, they may be driven away from a job they enjoy as a result. This often occurs as younger employees grow within the company, get families and personal lives, and find that they can no longer keep up with the pace of their work. Understanding the stress a job puts on an employee can enable you to spread work more evenly or hire more employees for a role when necessary. - Feeling unappreciated
Employees don't just want a schedule and a paycheck. They want to feel that what they do every day matters and that their efforts have value beyond the money it brings in. Even if an employee is relatively happy at work, successfully balancing their work and personal life, and isn't looking for more advanced opportunities, simply feeling that management is indifferent to their efforts can be enough to cause some people to look for another position.
This becomes more likely the longer somebody is with a company. As the employee begins feeling a greater sense of loyalty to the business, they want to feel that the business cares about and appreciates them.
What is the cost of high employee turnover?
Regardless of what kind of business you run, you want employee turnover to be as low as possible. It's true that some businesses are chronically plagued by high employee turnover. However, it reflects very well on your likelihood of success if your company has lower turnover rates than your competition. Here are some of the consequences of a high turnover rate.
- Employees want to work at businesses with low turnover
Potential employees take turnover rates into account when choosing whether to work at your business or not. If your company has a reputation for employees who leave soon after being hired, whether they quit or are fired, you'll likely find it more difficult to attract new talent. On the other hand, if your company is known for satisfied employees, you probably won't have difficulty filling the vacancies you do have. - Replacing employees can be expensive
The more you've invested into an employee, the more you lose when they quit. Even in industries with typically high turnover, it's easy to see the cost of hiring and replacing an employee. There are uniforms to be bought and distributed, shadowing time with another employee to learn what needs to be done, and early mistakes as the new trainee gets the hang of things. The more often this has to happen, the more expensive it gets. - High turnover is a hit to morale
Most companies rely on their current employees to train new employees. However, this relationship doesn't just extend to the basics of getting the job done. Company culture is also passed along from long-term employees to new employees. Workers who have been with the company for a long time are a powerful force for maintaining and disseminating company values. If your business fails to keep long-term employees, you'll lose this powerful stabilizer of culture. - Remaining employees suffer when you’re short-staffed
High turnover often goes hand in hand with chronic understaffing. While you're struggling to replace the person who has left, remaining employees take on the burden of extra work. The remaining employees are now laden with additional work and the responsibility of training a new hire to replace the person who has left. Companies that chronically put their employees in this situation are likely to see even more employees leave.
How to reduce employee turnover
What is employee retention? Reducing employee turnover by even a few points can make a difference in how smoothly your business operates. While some types of businesses will always experience higher turnover than others, there are things you can do to bring down your company's turnover rate, regardless of what industry you're in.
- Write a good job description
The first step to reducing the number of employees that leave your business is making it more likely that they wanted to be there in the first place. Job descriptions that are overly rosy, vague, or don't accurately describe the job that needs to be done attract employees who quit soon after they realize what the job really is. If you notice that a lot of your turnover comes from employees quitting soon after starting, a poor job description may be the culprit. - Pay attention to who you hire
Be discerning about the people you choose to hire and train. Companies that hire unskilled workers often don't put a lot of effort into screening and end up wasting a lot of energy training people who are not likely to thrive in the role they've been hired for. If a significant amount of employee turnover comes from employees who quit during or soon after training, it may be that you aren't recruiting people who are likely to do well in the position you need to fill. - Be deliberate about onboarding
The majority of training and onboarding at most companies is done by current employees, typically with a shadowing or mentoring program. There's nothing wrong with this kind of system for onboarding, but management needs to be conscious of ensuring it is done correctly.
Employees who are frustrated by the extra work it takes to train somebody or are looking for an opportunity to take it easy for a shift may skirt some of the responsibilities of onboarding. Even small oversights at the beginning can lead to mistakes in understanding that cause major issues and bad feelings down the road. Make sure that only responsible employees are put in charge of training and properly motivate them to train the new employees well. - Communicate with your employees
Effective communication that keeps employees happy and wanting to work at your company goes both ways. It is, of course, important for you to give employees feedback so that they do their jobs well. However, it’s just as important for you to elicit feedback from your employees.
Learn what they like about their jobs and where they're struggling. Are they having a hard time maintaining a good work-life balance? Do they feel that management is responding appropriately to their needs and concerns? Do they work well with their teammates?
Learn how your employees feel about their everyday work experience, and you'll be much more likely to catch problems before they turn into something worth quitting over. This is also a good opportunity to learn when an employee may be looking for places to branch out so you can give them a path for advancement within your company instead of having them leave for another opportunity. - Actively build loyalty
Loyalty is too often overlooked because it is a soft resource that can be difficult to pin down. However, employees who feel loyal to you and your company are more likely to stick it out and stay with you, even if there may be another good opportunity on the horizon or your company is going through a difficult patch.
Recognize your employees' achievements, foster bonding activities by hosting parties or playing games, and build a company culture of mutual respect. Take the time to learn about your employees' lives, what they're passionate about, and what brings them joy.
Even something as simple as tasking an employee who loves to garden with choosing and caring for plants at your location or allowing a sports fan to decorate and host a party centered around a sports event can be all it takes to develop powerful loyalty in the employee you single out and the employees around them as well. - Give employees reasons to stay
Raises that correspond with time spent at a company and new skills that employees gain while they're with your business keep your current employees with you and inspire new employees to stay longer and do more. While raises and benefits are often controlled by your budget and the position, it’s worth finding wiggle room to reward superior performance.
Some perks, like more flexibility in the schedule or the opportunity to manage certain tasks that require a good deal of responsibility, can come free but mean a lot to the employee. Even a heartfelt conversation with an employee about how much you value them and why you can’t offer a bigger raise right now can convince an employee to feel positive about working for you.
Retain your team longer
Regardless of your business, it is beneficial to reduce employee turnover. There's nothing you can do to eliminate turnover at your company completely, but by recruiting carefully, communicating well, actively building loyalty, and giving employees plenty of reasons to stay, you'll likely find that you can significantly reduce your company's turnover. You'll find that you spend less time and money hiring and training and that business runs more smoothly when you commit to reducing employee turnover.
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