A high employee turnover ratio can negatively impact the company's overall performance. Learn how to keep it healthy in our guide.
There is nothing untoward about people leaving their jobs. In any organization, some turnover is expected and, under normal circumstances, it should not create any problems. It's just part of the ebb and flow of organizational life.
However, high turnover is a red flag. It can be a symptom of some deep managerial dysfunctions at the heart of your operation, and it leads to reduced productivity, financial issues, and even reputational damage.
We’ll discuss different aspects of employee turnover to explain why it’s important and what to do to keep a healthy turnover rate.
Employee turnover is a measure that shows how many employees leave a company within a specific time period (annually, monthly, or quarterly.)
It’s an important indicator of management effectiveness that can help analyze the inner organizational environment and predict potential employee-associated risks.
There are two main types of employee turnover:
By itself, turnover is neither good nor bad – its nature and effect are highly determined by the context.
On the one hand, employee turnover makes space for new talent, which is beneficial for the company's development: without new people with their ideas and experience, a company risks stagnating. But on the other hand, a business can face negative long-term consequences if experienced employees choose to leave.
High turnover can have a detrimental effect on your business for a number of reasons, all of which boil down to a basic fact – it’s economically inefficient.
According to Built-In, losing an employee can cost a company one-half to two times the employee’s salary. Naturally, the actual cost will fluctuate, depending on the employee's seniority – generally, the higher the position, the higher the cost.
But let’s get into some detail and analyze how exactly high turnover may harm a company:
Advertising the position, interviewing, screening, and hiring are time-consuming and costly processes, as they require the services of specialists or the time and efforts of managers, who otherwise could use it for something else.
As for onboarding, new hires are typically not as productive as employees who have been doing the job for a longer time period – they need training, advice, and just some time and space to adapt.
Employee turnover can also lead to financial losses in less obvious ways. For instance, some clients may put a high value on their relationships with their account managers or key contacts within your company. If those employees leave, clients might see it as a reason to take their business elsewhere.
This is an immediate result of high turnover: the more people leave around the same time, the more pressure it puts on the team members who stay. And even though people might try to fill in all the gaps, there is no guarantee they can maintain the usual workflow. Besides, extra workload is always stressful, exhausting people both emotionally and physically.
When too many people leave, the rest of the team members eventually start to ask questions. High turnover might cause anxiety, making people feel insecure at the company. This, in turn, leads to a loss of employee engagement and productivity. Why try harder if things are going wrong anyway?
High turnover is a not a good sign for either potential employees or customers. Job candidates may refuse to apply for a job at such a company, thinking that employees are not treated well. Customers may not want to buy products or services, uncertain about their quality. After all, people respect stability.
There is no universal number that would be applicable in each and every case. The employee turnover rate depends on many factors, and first and foremost, on the industry.
That’s why the best way to assess your organization’s turnover rate would be to compare it to the rate of other companies within the same industry, to track the tendencies, and compare your numbers to the numbers of competitors.
The 2023 US Mercer Turnover Survey and Canada Turnover Survey suggest that the average turnover rate among US businesses was 17.3% between 2022 and 2023 (as compared to 24.7% in 2022.) Here are some examples of average volunteer turnover by position:
Typically, industries with the highest turnover rates are those where employees have to work in high-stressed and faced-paced environment – and / or for a comparatively lower compensation.
The hospitality sector and the retail sector are both good examples of this. In the US, turnover within the retail sector stands at 24.9%. Meanwhile, in the UK, the turnover rate in the hospitality sector is 52%.
Further reading: Employee Retention Statistics That All Managers Should Know ➡️
But again, bare numbers will not help you deeply analyze what’s going on in your organization. You should look at who’s leaving the organization, and under what circumstances.
If it’s voluntary turnover, losing skillful experts is disturbing, and then it makes sense to analyze the factors that might have made people make such a decision – a lack of growth opportunities, low salary, or toxic workplace culture. However, losing a person who does not perform well should not be a problem for the business.
Employee turnover might be caused by various reasons, or even by a mix of several ones. Let’s enumerate the most common reasons why people choose to leave their jobs:
As cynical as it sounds, we live in a material world in which bills need to be paid. Salary is the most tangible indicator of the company-employee relationship, and a good salary is a baseline requirement for retaining talent.
When employees are not properly compensated, it can be a signal they’re not fully appreciated by their company. Of course, that would encourage an employee to start considering better alternatives – and that poses a risk to your business, as the company offering a higher compensation might be your competitor.
According to a Pew Research Center survey, an overwhelming 63% of respondents named low pay as one of the top factors that make people quit a job. These figures vividly show that employees want to be fairly compensated.
According to the result of a GoodHire research, 82% of respondents said they would leave their job because of poor management. Managers set the rules for the whole team, and bad rules lead to a bad game.
Managers might not respect employees’ personal time, calling them late at night and on weekends. They might micromanage. They might have communication issues, overloading people with unnecessary information – or, vice versa, not giving them information they need. And this list can be much longer.
The actions of managers can seriously disrupt the workflow, let alone cause frustration in a team that might make people start looking for a better workplace.
We still live in the hustle culture paradigm dictating us that success is possible only through self-sacrifice and long, exhausting work, at the cost of self-care and personal well-being. However, after the Covid-19 pandemic, during which people got a chance to work remotely, they started to reconsider their attitude to work.
More and more employees choose to get out of the never-ending rat race and refuse to put in extra effort just for the sake of some ephemeral “success.” They look for healthier job options that would let them enjoy life along with making a career.
Of course, remote work does not equal work-life balance – after all, balance is about the scope of your workload, and even when working remotely, you might get absolutely overwhelmed. In the contemporary business world, the burnout statistics are shocking, and the correlation between burnout and high employee turnover is obvious – and expected.
A negative work environment does not encourage employees to do their best. Having to deal with gossip, conflicts, disrespect, backstabbing, and other toxic things like that is exhausting and doesn’t let people focus on actual work.
The antidote to such dysfunctional behaviors is cultivating trust, but, unfortunately, not all companies consider that a cultural priority.
A form of toxic culture can also be a lack of support or recognition from management. The lack of growth opportunities causes a feeling of stagnation that, soon or later, will cause people to ask themselves what they might be missing out on while staying at the organization. The same concerns a lack of recognition: if no one notices your effort, no matter how hard you try, you will eventually lose interest and motivation. This, of course, will negatively affect employee retention statistics.
Finally, we have to say that the company culture does not necessarily have to be toxic for a person to want to leave – sometimes, there is a value mismatch, when what is important for the person is not important for the company, and vice versa.
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To understand their turnover tendencies, organizations can calculate employee turnover rates for a month, a quarter, or a year. While monthly or quarterly employee turnover rates can provide more specific data, the calculation of the annual rate can show the overall pattern, revealing deeper problems.
To calculate annual turnover calculation rate, an organization need three numbers:
First, find the average number of employees who worked for the company by adding the number of employees at the beginning and the total number of employees at the end of the year, and dividing it by two.
For example, if a company had 123 employees at the beginning of the year and 107 employees by the end of the year, the average is calculated as (123+107)/2= 115.
Now, to find the employee turnover rate, divide the number of employees left during the year by the average number of employees. Then multiply the result by 100 to get the percentage rate. So, if 13 employees leave during the year, the annual turnover rate is 13/115 x 100 = 11.3%.
One thing to remember: not all calculations of turnover include retirees, so it is worth noting whether your calculation includes these departures or not.
It’s not enough to fill a position: you have to find people who have values and motivations congruent with your company's mission. A thorough interview process can help you hire a person who is not only a skillful specialist but also someone who shares the same values and is a good fit for your company.
By recognizing high performers’ effort, organizations show they value them. This can be expressed in different forms – for example, by increasing their salaries, promoting, or providing various perks. Such a practice will motivate both high performers and other team members, who will see what they can achieve by hard work, increasing employee engagement.
Gaining new knowledge and upskilling lets people feel they are developing and becoming better versions of themselves. Overcoming challenges, even small ones like finishing a course, can give them a sense of meaning – especially if those victories can lead them to career growth.
So help your people to develop - organize trainings and courses, let employees shadow more senior colleagues, or create opportunities for internal mobility.
Managers who are too distant or, on the contrary, who micromanage, contribute to negative team dynamics. Understanding the patterns of how they collaborate with the team, both by having a conversation with managers and with their teams, can help reveal problems before they get too serious.
Promote trust and respect among team members as a company value. Emphasize the importance of productive conflict, as opposed to toxic silence or intrigues. Build an environment of psychological safety where people can openly share their ideas and concerns. Give people an opportunity to choose how they want to work. Creating a comfortable workplace and a people-first culture can affect employee retention more than you can imagine.
Stay interviews will help you understand what people value in your organization, and exit interviews can pour some light on the problems that lead to undesirable turnover. It’s important to hear what people say because sometimes, their thoughts are eye-opening. Taking their ideas into consideration can significantly elevate employee experience in the company.
Employee turnover can pose a serious risk for your business, interrupting the workflow and damaging your reputation. It’s always easier to prevent a problem than to fix it, so tracking your turnover regularly and analyzing the factors behind it can help uncover and address issues before it’s too late - and, in the long run, it can positively affect employee retention.
