Employee turnover: Definition, causes, and solutions

When you own or manage a business, you must control many facets for profitability, productivity, and customer satisfaction. One element is your employees. These people are crucial for your business, so it makes sense to hang on to them and limit employee turnover. 

In certain situations, employee turnover can positively impact profitability, productivity, and customer satisfaction, but it typically causes adverse effects. 

If your business is impacted negatively by employee turnover, understanding the causes will help you incorporate solutions to improve your business goals. Let’s learn more.

Employee turnover is when workers leave a company within a specific period, and management needs to refill the positions to continue operations. It's normal to have a certain degree of employee turnover because employees leave for various reasons. 

Sometimes, the company may benefit when employees leave, but a high turnover rate can indicate problems within the organization. 

Keeping track of the staff turnover rate and their reasons for leaving can help you address any issues causing a higher-than-normal employee turnover rate. 

Employee turnover is not necessarily unwelcome. It's important to understand the differences in the types of employee turnover to determine if it’s something to worry about. 

Understanding the differences between voluntary and involuntary turnover and what kind of turnover is acceptable will determine your course of action when addressing this issue.

Voluntary vs. involuntary turnover

Workers resigning and leaving to join other companies is voluntary employee turnover. 

A company asking employees to leave is involuntary turnover. This may happen through layoffs, downsizing, or firing.

Desirable vs. undesirable turnover

If a company lays off or fires employees, this might be a chance to refill or recreate those positions with new talents and skills to give the company a competitive edge. This would be considered a desirable turnover. 

A high voluntary employee turnover rate is undesirable, especially concerning well-performing, skilled employees.

It's easier and cheaper to keep valuable customers than attract new ones for your business. The same goes for employees. 

Losing one highly valued employee requires the company to spend extra time and resources to hire new employees of the same caliber or use time and resources to train them. 

Employee turnover can result in:

• Extra spending on recruitment and onboarding 

• Additional expenses on training a new hire

• Lower morale for the employees who have to pick up the extra work

• A less experienced staff

• A deterioration in business operations and customer service 

If an employee voluntarily quits, find out what’s going on. You'll want to analyze data on all employees who have left. Collect data about the employees such as:

• What department they worked in

• Who their supervisor was

• The position they occupied

• Reason for termination

• Employee demographics

• Date of termination

• Annual salary

• Length of employment

You can analyze the data and determine what changes your company may need. 

Exit interviews or surveys are also a great way to gather insight into an employee’s reason for leaving. HR departments typically gather this information and analyze it for trends and patterns.  

There's always room for improvement. Knowing the reasons for high and low employee turnover will help you zero in on and improve the things causing your employees to quit. 

At the same time, you can use this knowledge to continually enhance the reasons why employees stay.

Reasons for high employee turnover

Reasons you haven't thought about could make an impact on employee turnover. Here are some things to consider when analyzing your high employment turnover rate:

• Workplace culture may lack diversity and inclusion

• Total compensation may not be suitable for the position

• Inadequate hiring processes, orientations, or employee training

• Employees are unchallenged or unproductive in the positions they hold 

When diverse or minority employees do not feel included or valued in the workplace, it breeds dissatisfaction. Incorporating diversity and inclusion training and programs will help everyone contribute to a more inclusive work environment.

Check if the employees leaving are eligible for overtime or not. While some employees may prefer a salary without the option of overtime, others may be happy with an hourly wage and the opportunity for extra work. Does one group have more leavers than the other? You may need to restructure these roles. 

If employees leave during the first year, the problem may be with: 

• The hiring process

• Orientation

• The training they receive

• The quality of the manager’s leadership

• Feeling overqualified, unchallenged, and unproductive in their new position. 

Reasons for low employee turnover

Banks and financial institutions focus on retention to keep their turnover rate down. Some things this industry has adjusted for are:

• Competitive salaries

• Competitive benefits

• Flexible hours and richer time-off benefits

• Room for advancement

• Career paths and development opportunities

• Incentives

Making salaries more competitive and adding loyalty benefits can encourage a low turnover rate. 

Performance-based salary increases and more time off when employees reach longevity milestones equate to job satisfaction. 

Flexible hours and remote work add to work-life balance. Opportunities for advancement also help with employee retention.

If you’re seeing high turnover rates, it's time to take stock of the situation by:

• Calculating the employee turnover rate

• Evaluating the cost of the employee turnover rate

• Determining the causes of turnover

• Making the necessary adjustments according to the results

Choose the period you want to examine, such as a particular quarter or year, and collect the necessary information: 

• The number of employees at the beginning of the period

• The number of employees at the end of the period

• The number of employees that left during that period

What is the formula for employee turnover?

First, you'll need to calculate the average number of employees. Once you have the result, you can plug that number into the formula for calculating the turnover rate percentage.

How to calculate the average number of employees

You'll add the number of employees at the beginning of the period to the number of employees at the end and divide this total by 2:

Average number of employees = [(number of employees at the beginning + number of employees at the end) / 2]

If you had 50 employees at the beginning of the period and 45 at the end, your average number of employees would be 48.

Calculate the turnover rate percentage

Divide the number of employees who left by the average number of employees. Multiply that number by 100 to get the turnover rate percentage:

Quarterly or annual turnover percentage rate = [(number of employees who left / the average number of employees)*100]

For example, if you have an average of 48 employees and 5 of them left, you would have a 10% turnover rate. 

What does 10% employee turnover mean?

A good employee turnover rate is about 10%, depending on what industry you’re in. 

For example, the annual national average of all industries in the United States is 32.7% for voluntary turnovers in 2021. 

Industries with the highest quit rates contributing to this national average were:

• Accommodation and food services in the leisure and hospitality industry: 70.7%

• Retail trade in the trade, transportation, and utilities industry: 50.6%

• Arts, entertainment, and recreation in the leisure and hospitality industry: 42.6%

The industries with the lowest quit rates in 2021 include the following:

• Federal government positions: 9%

• State and local education positions: 10%

• State and local positions other than educational: 12.2%

Depending on the type of business or industry, some turnover is expected. It’s unavoidable if you’re offering internships, apprenticeship programs, or seasonal work. In these cases, it doesn’t necessarily reflect adverse conditions. 

Generally, a high turnover rate could impact your company's image for recruits. Everything might look good on the surface, but underlying problems may contribute to unsatisfied workers. 

High turnover rates are sometimes related to high-pressure jobs, varying, unpredictable working schedules, and lower pay and benefits. 

On the other hand, a low rate may signify better compensation and benefits packages, more flexibility, and growth opportunities. 

Why does a company have a high turnover?

A company could have a high turnover for several reasons: 

• It’s laying off personnel from positions that are no longer needed

• Employees are retiring

• Employees are dissatisfied with a toxic work environment or a lack of opportunities

What is the turnover rate for Google?

Although Google does not publicize its employee turnover rates, the company has established retention programs in the U.S. and worldwide, mainly targeting diverse or minority employees. 

In 2021, they formed a Stay & Thrive committee to help their leaders understand why employees leave. They also launched a program in the U.S. called the Maven Maternal Health Program to give expecting mothers and parents who work at Google more support. 

Another program they launched to advance diversity and inclusion is the #ItsUpToMe program. Managers work closely with people operations specialists, DEI experts, and employee resource group leaders to become proactive partners with all communities. 

If you’ve delved into the data, you’ve discovered why employees leave. Common examples and solutions include:

• Many employees leave from the same department or under the same manager

  • These areas may need HR attention

  • Supervisors may need more training

• Annual salaries were too low

  • Ensure your employees are paid enough

  • Review salaries regularly in line with inflation

• Employees didn’t see an opportunity for growth

  • Offer training for employees to add to their skillset

  • Ensure promotions are a real option

Policy changes and additional training can return employment turnover to acceptable rates.

Your business can take many steps to improve retention, like:

• Developing programs that show that the employee is valued

• Creating DEI programs to show your company prioritizes employee well-being

• Improving work-life balance: Flexible work schedules, remote work, and more time off

• Ensuring HR finds the right cultural fit for roles

• Recognizing and rewarding employees: When employees feel valued and have a sense of accomplishment, these feelings equate to job satisfaction and longevity.

Employees are a big part of business operations. They can enhance the operation of your business or disrupt it. 

Knowing how to retain employees with valuable skills and qualifications for the long run is vital to business operations. 

However, higher turnover rates are sometimes necessary to replace underperforming employees with employees that fit your needed skillsets and business culture.