Employee turnover can be a serious drain on a company’s resources.

Studies show that it can cost from tens of thousands of dollars to up to twice an annual salary.^[1]

Factor in the strain it puts on HR staff, the blow it delivers to overall morale, and the risk it poses to client retention, and it’s a no-brainer that employee turnover needs to be a priority.

The good news is it’s manageable. 

In this guide, we walk you through everything you need to know to mitigate employee turnover so that you can improve employee retention, reduce financial losses, and ensure employees actually want to work with your company.

By calculating quantifiable data, pinpointing causes, and honing in on valid solutions, such as hiring for culture add, you can mitigate high employee turnover and keep your business thriving.

Table of contents

• What is employee turnover
• Why should you care about employee turnover
• The different types of employee turnover
• How to calculate your employee turnover rate
• What causes employee turnover
• 9 ways to address employee turnover
• Make managing employee turnover a priority
• ✅ Lower employee turnover by practicing skills-based hiring

What is employee turnover?

Employee turnover refers to the number of employees who leave a company within a certain period of time (usually one year). It’s quantifiable and can be calculated as a percentage.

The employee turnover definition includes employees who leave both voluntarily or involuntarily and whose terminations were either desirable or undesirable in the eyes of the business (more on that later).

It’s worth noting that turnover differs from attrition, though they’re often confused.

Whether workers choose to leave or are forced to, they need to be replaced in the scenario of staff turnover.

Attrition, on the other hand, is a reduction of a workforce due to employees choosing to leave, with the organization opting not to backfill their roles.

Why should you care about employee turnover?

Although some employee turnover is inevitable, failing to manage it properly can have serious consequences.

To begin with, it’s a sign that something is wrong in the HR process.

If there’s a constant revolving door of new hires, there’s a good chance that:

1. The staff isn’t aligned with the company culture
2. There’s a problem with onboarding or management
3. Employee benefits and salaries need to be reassessed

Turnover also has a significant financial impact. As mentioned in the introduction, the cost of turnover can reach up to twice an employee’s annual salary. This means that if 10 workers, each making $100,000 per year, leave an organization, it can cost up to $2m to replace them.

Finally, there’s a reputational risk. When positions aren’t filled, important tasks are frequently delayed, and customer relationships can become strained.

The good news is not all turnover is necessarily a bad thing.

The different types of employee turnover

Because we’re talking about people here (not just numbers in a spreadsheet), we need to look at the context around a company’s high turnover rate.

Employee turnover is an umbrella term for workers leaving an organization. But when put into context, turnover can be broken into different, comparable types.

First, it can be broken down into involuntary or voluntary turnover. 

Involuntary turnover happens when a business terminates an employee. Examples include layoffs, dismissals due to poor performance, or violation of regulations leading to termination. 

In contrast, voluntary turnover occurs when employees leave the organization on their own terms. Examples include people who leave to get new jobs in other industries, move locations, or increase their salaries. 

Next, turnover can either be desirable or undesirable. 

The dismissal of employees who perform poorly, don’t match the company culture, or display toxic behavior is known as desirable turnover. 

This type of turnover can be great for HR teams because it creates an opportunity to hire new employees:

• Whose personalities are a better fit for the role
• Who can increase revenue
• Who can give the company a competitive advantage

On the flip side, undesirable turnover occurs when an organization loses an employee who was a great fit and brought a competitive edge to the business.

Though your turnover can only be involuntary or voluntary, either situation can be desirable or undesirable.

For example, you can have both desirable voluntary turnover (like an employee who can’t fully commit to the role and is frequently absent) and undesirable voluntary turnover (like a highly skilled worker who leaves because of burnout). 

Lastly, all turnover is either internal or external. Internal turnover is when employees are promoted or move laterally within the organization. It’s usually a sign that people are happy and hoping to move forward with the company.

In contrast, external turnover happens when employees leave the business entirely and can sometimes signal deeper issues internally.

How to calculate your employee turnover rate

So now you know what employee turnover is and why you should care about it. But how do you actually determine your organization’s turnover rate?

All you have to do is:

1. Take the total number of individuals who leave within a set time period (usually one year)
2. Divide it by the average number of employees in the business during that period
3. Multiply it by 100

For example, if you had an average of 250 workers in 2022 and 60 people left during that year, your turnover rate would look like this:

(60/250) × 100 = 24% total turnover rate

This percentage doesn’t tell us much on its own. The more context you put around the data, the more it helps you pinpoint if you’ve got a healthy turnover rate or if there may be internal problems.

That’s why it’s a good idea to calculate the involuntary turnover rate as well as the voluntary turnover rate.

To calculate the voluntary turnover rate, divide the number of people who left on their own terms by the average number of workers the company employed.

Sticking with the above scenario of 60 people leaving a business of 250 people, if only 20 of them left voluntarily: 

(20/250) × 100 = 8% voluntary turnover rate

The same goes for the involuntary turnover rate. If the 40 remaining people who left were dismissed, the involuntary turnover rate would be: 

(40/250) × 100 = 16% involuntary turnover rate

As you can see, the involuntary turnover rate (16%) and voluntary turnover rate (8%) add up to the total turnover rate (24%).

What is a good employee turnover rate?

Now that you know how to calculate your employee turnover rate, how do you know whether the number should set off alarm bells or give you a sense of relief? 

Unfortunately, you don’t – at least, not until you contextualize the number. 

There’s no one-size-fits-all answer to what constitutes a good or bad turnover rate. Every industry, business, and situation is different.

To help you get a sense of where your organization falls, here are the 2021 total turnover rates, according to the U.S. Bureau of Labor Statistics:

Industry	Yearly total turnover rate
Total (across all industries)	47.2%
Government	18.1%
Finance and insurance	26.3%
Education and health services	37.3%
Information	38.9%
Manufacturing	39.9%
Trade, transportation, and utilities	54.5%
Professional and business services	64.2%
Retail	64.6%
Leisure and hospitality	84.9%

The who, when, and why of employee turnover

Before evaluating your turnover rate, it’s important to know the context behind the number. By asking “who, when, and why,” you can create a simple framework that gives you more insight into the causes of the turnover rate you’re experiencing.

So, what do we mean by the “who, when, and why” of turnover? 

1. Who: This can expose a cause that’s outside your control. Older workers choosing to retire versus disgruntled workers leaving to escape a toxic environment paint two very different pictures.

2. When (the employees left): This information may reveal patterns in turnover rates. For example, are people leaving during major sales periods, signaling they could be overworked because of poor scheduling?

3. Why (are people leaving?): This tells you what’s causing turnover. Are employees voluntarily leaving because they’re dissatisfied with their salary? Or maybe they are leaving because they feel burned out, overwhelmed, and undervalued?

What causes employee turnover?

Now that you have a framework for narrowing down the causes of employee turnover, let’s look into some of the major ones that occur in most industries.

You can mitigate employee turnover by identifying and addressing these causes with our suggestions below.

Before we dive in, remember that some of these causes are inevitable. People rarely stay at a single job for their entire working lives. (The median tenure as of January 2022 is 4.1 years.)

Again, context is key, so we’ll look at the causes of voluntary turnover separately from those of involuntary turnover. 

Common causes of voluntary turnover include: 

• Lack of career development or progression opportunities: When employees feel there’s no room to grow, they’ll look elsewhere.
• Lack of meaningful work: Employees who feel a sense of achievement, growth, and responsibility are more likely to stay (and want to stay) at their place of employment.^[2] 
• Natural career progression: Sometimes, employees simply want to switch industries, progress to a new role that their current company can’t offer, or have a change in professional values. 
• Burnout: Employees who feel severely overwhelmed and stressed are more likely to leave a business.
• Toxic work environment: A toxic workplace culture is a massive driver of turnover. In fact, it is one of the biggest factors behind the Great Resignation.
• Being lured by the competition with better pay or benefits: Pay satisfaction directly influences employees’ decisions to leave an organization.
• Life events: Situations such as a need to change locations for family reasons can force an employee to leave, which is something a company has little to no control over. 
• Retirement: Eventually, everyone reaches retirement age and might decide to leave the workforce. Although this isn’t something a business can directly manage or change, it’s a common cause of turnover.

On the other hand, the major causes of involuntary turnover include: 

• Poor performance: If an organization hires an employee who lacks the skills to fulfill the role, they will likely need to terminate their employment. However, poor performance can also result from poor motivation, which can stem from burnout, a lack of meaningful work, and a lack of opportunities. 
• Toxic behavior: An organization may need to terminate an employee if they display toxic behavior that creates an unhealthy environment for coworkers and managers. 
• Breaking company policies (or laws): Employees who break company policy or the law (i.e., a non-compete clause or a code of conduct) need to be involuntarily dismissed. 
• Layoffs/reductions: In times of economic hardship, employees may need to be terminated. 
• A mismatch between the organization and employee: When an organization and an employee have different values (such as a differing work ethic or a mismatch in social views), cultural problems can arise that lead to involuntary dismissal.

9 ways to address employee turnover

Taking steps to manage employee turnover is a smart idea because it:

• Improves your company’s financial performance
• Leads to a happier workforce
• Improves your organization’s culture and reputation
• Contributes to a consistent customer experience

Simply put, having employees stay with you because they want to is a win-win for everyone.

So, with these clear-cut benefits in mind, let’s look at nine proven ways to reduce turnover.

For even more ideas on how to address turnover, check out our post on reducing employee turnover.

Summary

Ways to manage turnover	Key points
Analyze your turnover data	Each year, look at the qualitative and quantitative data on your employee turnover; Calculate involuntary and voluntary turnover rates and analyze the “who, when, and why”
Use skills-based hiring	Remember that a candidate’s skills and abilities aren’t always obvious just by looking at their experience on a resume; Use generic and role-specific skills tests to gain more insight into whether or not a candidate will perform well in your open position
Improve onboarding	Be careful not to focus onboarding solely on imparting your company culture and HR processes to new hires; Build an onboarding process that socializes new hires based on their individual identities rather than solely on the organization’s identity
Offer internal mobility	Provide opportunities for employees to be promoted or move laterally, which can save your organization time and money; Use internal recruitment to build company culture and improve retention
Hire enough staff	Avoid employee burnout by having the right number of staff; Prevent overwork, overstress, or stretching employees too thin
Offer flexible work	Offer flexible working conditions to promote a healthy work-life balance; Reduce voluntary turnover from life events such as relocation or parenthood
Invest in training	Help staff feel safe, supported, and confident in their roles through training programs; Invest in communications courses and leadership training to promote a positive, healthy work environment
Celebrate achievements	Recognize achievements in a professional and social sense to build employee engagement; Implement peer-to-peer recognition to foster respect and responsibility
Hire great management	Bring in great managers who can help staff feel heard and valued; Combat a toxic work environment by investing in leadership

1. Analyze your turnover data to uncover trends and pinpoint weaknesses 

Collect and analyze all your turnover data as a first step to managing high employee turnover.

A great way to do this is to have an annual team meeting to reflect collectively on your company’s qualitative and quantitative turnover data.

When analyzing the quantitative data, calculate both your overall employee turnover rate and your involuntary and voluntary turnover rates.

Then, factor in the qualitative data by analyzing the “who, when, and why” of the employees included in your employee turnover rate.

This analysis inevitably points you to issues that your team can address, such as hiring the wrong types of people or employees leaving because of burnout.

Once you gain a clear picture from your data, it becomes more apparent which of the following eight best practices can help your team make genuine improvements. 

2. Use skills-based hiring to reduce poor hires

A resume only tells part of the story. 

People like Elon Musk, Steve Jobs, and Bill Gates were all college dropouts and, on paper, would look like risky hires. However, they all possessed unique, intangible skills that an employer couldn’t see just by looking at their resumes.

You can avoid overlooking great candidates like these by using skills-based testing.

And by hiring people who prove they can meet the day-to-day needs of the role, you can mitigate employee turnover by reducing the chances of burnout and poor performance (two common causes of turnover).

For more insight into how skills testing can improve the hiring experience, check out our post on Digital Care’s transformation process.

3. Improve your onboarding process to stop recruits from leaving early

Having an onboarding process that helps new hires feel supported and settled is crucial. 

But you need to be careful not to focus your onboarding initiatives solely on imparting the company culture and processes to new hires.

According to a study by MIT, a corporation with a company-centric process reworked its onboarding to focus on incorporating the individual identities of new hires rather than trying to solely impart the organization’s identity. The result was that their employees were more than 32% less likely to quit in the first six months.^[3] 

If your onboarding doesn’t help your new hires feel like they’re part of the team, it likely won’t reduce your turnover rate.

4. Offer internal mobility to provide a chance to progress inside your organization

Though internal recruiting can add to employee turnover (specifically desirable, internal turnover), in the long run, it reduces external, undesirable turnover – which is the goal of mitigating turnover.

By offering a chance for employees to be promoted internally or move laterally, you can save your business time and money. 

Internal recruits have already proven they can add to your company culture, which saves you from trying to find and train a new employee to do so. Plus, internal hires are more likely to remain longer, especially if they continue to see opportunities and feel recognized (more on this soon). 

Make sure not to pigeonhole candidates into a single department or career path. Instead, think creatively to help employees and managers explore what’s right for them within your business.

5. Hire enough staff to prevent burnout

Employee burnout is a serious and, unfortunately, common problem.

And what’s more, burnout can have multiple causes (such as toxic work culture, managerial pressure, or insufficient compensation), making it harder to pinpoint and address. 

But a great place to start for dealing with employee burnout is having the proper number of staff for each of your projects.

This reduces the risk of teams feeling overworked, overstressed, and underappreciated. 

Turnover can often be the last straw for remaining, already burned-out team members. By being properly staffed, you help your current workers cope with natural turnover, short-term absences, and time off. 

This approach also gives you enough time to fill open roles and bring teams back to full force without having to rush the recruitment process and risk making a bad hire.

Check out our post on employee burnout for more causes, signs, and prevention tactics. 

6. Offer flexible working to give employees a better work-life balance

Offering flexible working conditions is a great way to manage employee turnover.

Not only do flexible working conditions improve productivity, but they also make your employees feel respected.

Giving workers freedom of time and location makes them feel trusted. In turn, this creates a happier environment for everyone. 

Furthermore, flexible work can help mitigate a turnover cause that’s normally out of your company’s hands, i.e., life events. If staff can change location or continue working despite a major lifestyle change, they’re less likely to leave their current job. 

7. Invest in training programs to help your staff grow and develop

Training programs and other development opportunities go a long way toward helping your staff feel safe, supported, and eventually confident in their roles. 

For example, communications courses and leadership training help managers learn how to combat conflict and improve a toxic work environment.

Transformational leadership courses are one excellent option for showing managers how to take hold of difficult situations to make employees feel valued, reassure staff that their work is meaningful, and promote a healthy environment – all of which help to combat turnover.

Imagine this situation: 

A software company goes through a major rebrand, and some employees feel like they no longer align with the new company culture. They’re frustrated and start to think about resigning.

A transformational leader recognizes these warning signs and seizes the opportunity to help disillusioned workers. They run ad-hoc workshops and give employees a chance to brainstorm unique ways they can add to the new culture. This timely act contributes to a more inclusive rebranding process and prevents many from leaving.

8. Celebrate your people’s achievements to make them feel appreciated and boost morale

You can reduce poor motivation and lack of meaningful work (two common causes of employee turnover) by creating an environment that encourages peer to peer recognition. 

This could be an end-of-the-year awards ceremony or a day off work on each employee’s work anniversary.

By recognizing achievements, you let employees know that you value and recognize them. These gestures contribute to a positive, appealing work environment.

Fostering a sense of value, respect, and appreciation is an effective way to promote employee happiness and reduce turnover. 

9. Hire great management to help employees feel heard and valued

According to a study by Gallup, 50% of employees left a business because of bad management. 

Knowing how to hire great managers can ensure your staff feels heard and appreciated as they carry out their daily work routines.

When you recruit managers, regardless of their department, aim to hire people with excellent communication skills who promote honesty and transparency. These skills and values help them stay on top of employee problems and improve toxic environments, cutting down on unforeseen terminations or resignations in their tracks.

Don’t rely on their resume to tell you if they’re fit for the role, though.

To hire the best manager, use the Communication test to assess whether or not they’re open and transparent. You can also evaluate them with the Leadership & People Management test to ensure they can fully support their team. 

Make managing employee turnover a priority

A high employee turnover rate doesn’t just put a dent in an organization’s finances. It also wreaks havoc on the company’s overall work environment and reputation among affiliated businesses and customers.

But there are many ways to manage employee turnover, reduce costs, and improve the internal health of your organization.

By taking steps like calculating the employee turnover rate and creating a positive work environment, you can manage and prevent the negative cycle of staff quitting because they’re unhappy and staff, in turn, becoming unhappy because others are leaving. 

Or, if you’re wondering how to hire staff who are less likely to resign, check out our personality and culture tests, which help you match candidates to your company’s values without bias. 

Sources

1. Bersin, Josh. (August 16, 2013). “Employee Retention Now a Big Issue: Why the Tide has Turned”. LinkedIn. Retrieved December 23, 2022.

2. Flowers, Vincent S.; Hughes, Charles L. (July 1973). “Why Employees Stay”. Harvard Business Review. Retrieved December 23, 2022. https://hbr.org/1973/07/why-employees-stay

3. Cable, Daniel M.; Gino, Francesca; Staats, Bradley R. (Spring 2013). “Reinventing Employee Onboarding”. Massachusetts Institute of Technology. Retrieved December 23, 2022. https://www.hbs.edu/ris/Publication%20Files/Reinventing%20the%20onboarding%20process_3b5ac7ce-f71b-40d9-bb8a-93276b979570.pdf