A Definitive Guide to Employee Turnover and How to Reduce It

Posted on July 4, 2023

Employee Turnover Header Image

Employee turnover is a legitimate threat to businesses, with Gallup reporting that the cost of replacing one employee can range from “one-half to two times the employee's annual salary.”

The bar for companies is now much higher as job seekers look for flexibility, transparency, and empathy from their employers alongside a paycheck. Unfortunately, many businesses struggle to meet these expectations and shift their priorities.

With a strategic approach to managing employee turnover, you can reduce a resignation trend's impact on your business’s productivity and bottom line.

In this article, you’ll learn how to optimize the employee experience and slash your turnover rate.

Table of contents

What is employee turnover?

Employee turnover is the percentage of your employees who separate from employment at your company over a certain amount of time.

It measures the number of people who leave your company voluntarily (resign), retire, are made redundant and are let go by management.

What are the different types of employee turnover?

There are two metrics to study when measuring your turnover rates; voluntary and involuntary turnover.

Voluntary turnover refers to when an employee leaves the job of their own accord. Common reasons for doing so include seeking better financial opportunities or more flexible work cultures.

Involuntary turnover refers to those you ask to leave due to poor performance, poor fit, or structural reorganization.

Employee attrition refers to employees who retire or move positions within the company. This natural turnover occurs in all businesses; some companies choose not to include attrition when calculating their turnover rate.

Why is employee turnover important?

Measuring your employee turnover rate helps you pulse-check your work environment and give you insight into your culture.

Low turnover suggests that your retention efforts are working and your work environment is supportive and empowering. This formula ultimately encourages your employees to stay.

A high turnover rate can indicate low employee engagement caused by:

  • Communication breakdown
  • Poor transparency
  • Unfulfilling or tedious work
  • Unfair working conditions

It can also be a sign of lackluster management. Symptoms include micro-management, a lack of guidance, leader absenteeism, and disproportionate preferential treatment for colleagues.

Low productivity, grim team morale, and high recruitment and training costs are just some of the consequences of a high turnover rate, aside from the aforementioned financial burden on employers.

If you have a worrying turnover rate, hope is not lost. If you dedicate resources to understanding why people leave, you can quickly explore solutions and fix your culture.

How to calculate your employee turnover rate

Calculate your employee turnover rate to learn where your organization stands on the spectrum of employee exits.

Before you total up this number, you’ll want to decide how regularly you want to tally it: monthly, quarterly, or yearly calculations.

The frequency you measure turnover will depend on how fast you’re growing. If you’re taking on new employees monthly, you may want an overview of monthly turnover, for example.

Calculating the annual turnover rate is sufficient for businesses with less frequent recruitment.

To find out your employee turnover rate, first, calculate the average number of employees to find out your employee turnover rate. Divide the total number of employees at the start and end of your chosen period by two to get the average, like so:

( Number of employees at beginning of period + Number of employees at end of period ) / 2

Screenshot of average number of employees formula

From there, you’ll want to divide the number of employees who left in that period by the average number of employees, and then multiply it by 100:

Number of employees who left in that time period / Average number of employees x 100

Screenshot of Employee Turnover Rate Formula

For example, if four employees left last month and the average number of employees was 50, the calculation for the turnover rate for that month will look like this:

4/50 x 100 = 8%

You can get more granular with calculating your staff turnover by assessing things like turnover by gender or turnover in the first year of employment.

Getting detailed with your calculations will help you spot limitations or biases in your hiring and onboarding processes. You can use this information to improve company systems and address culture concerns.

What is the average company turnover rate?

Once you’ve calculated your turnover rate for the first time, use it as a benchmark to determine if you’re improving.

If you want to see how you’re doing compared to other companies, keep in mind that average turnover rates differ vastly between industries.

According to the American Bureau of Labor Statistics, quit rates are much higher in the hospitality (66.8%) and retail (50.6%) industries than in sectors like financial services (17.8%). These industries with the highest turnover tend to offer lower paid, less secure jobs and fewer growth opportunities.

The average employment separation rate across all industries in 2021 was 32.7%. This is an exceptionally high statistic compared to previous years when quit rates ranged between 25.2% and 28%.

Why do people leave their jobs?

In light of a global increase in employee turnover rates, it’s important to examine why people leave their jobs.

While businesses scramble to stop people from quitting, they often miss the point about what people most need. An increase in pay, a promotion, or “casual Fridays” doesn’t cut it in the current climate.

PwC’s Global Workforce Hopes and Fears Survey 2022 found one of the crucial things employers get wrong is not supporting people looking for personal fulfillment in their work. The survey of 52,000 people found that leaders often miss the chance to build trust with those most at risk of leaving.

Another important finding from the survey is how important it is for people to be themselves at work. The workforce no longer wants to avoid discussing political or social topics that were controversial in workplaces of the past.

Screenshot of PwC’s Survey 2022 about the impact of discussing sensitive topics at work

Out of the 65% surveyed who said they’d had sensitive conversations at work, 41% said those conversations helped them understand their colleagues better.

In short, a lack of empathy and understanding from employers, as well as resistance to flexibility and change are causing employees to leave their jobs at an accelerated rate.

Mutual understanding and emphasis on inclusion in the workplace are two stand-out values that companies must adopt if they want to retain A-players in 2022.

Impact of company culture on turnover

Company culture is the mission of your business combined with values, vision, and beliefs.

Communicating your workplace culture and what your company stands for provides a playbook for employees to conduct their day-to-day work. From how they communicate with clients to how they manage colleagues, clearly defining your culture can be instrumental in reducing your turnover.

Failing to communicate your company culture can lead to clashes in the workplace. Let’s take communication policies as an example.

Say you want to foster an asynchronous communication culture in your fully remote workplace, where employees are not expected to respond to messages and emails immediately. Colleagues receive a policy memo, but many team members soon fall into old habits.

They ping team members via email, Slack, and even text message colleagues when they don’t respond to a non-urgent query straight away. A colleague on her lunch break feels hounded, and a disconnect with her workplace begins to form.

Workplace culture is important to nurture employee engagement. But failure to communicate and uphold guidelines can lead to confusion on expectations and breed resentment.

Impact of bad management on turnover

More often than not, people leave managers, not jobs. As many as 57% of people say they quit a job in the past because of a bad boss. Getting management right is crucial to avoid unnecessary staff turnover and the associated cost of turnover.

Don’t let poor management be the reason people don’t want to work for you. If any of the following sounds familiar, it may be time for some management training.

Avoid management styles that:

  • Lecture as opposed to discuss with teams
  • Micromanage projects and tasks
  • Fail to provide growth opportunities
  • Demonstrate favoritism

Effective communication and empowering team members are qualities to look for in your leadership team.

Ambitious people are challenging to retain

Many people think Amazon and Google are ideal places to work, with their notoriety and adult playground-style office buildings.

Screenshot of notoriety and adult playground-style office buildings
Source: Business Insider

Although the mega-companies are highly rated workplaces attracting top talent, both companies have median tenures of only one year. Despite good salaries and intriguing benefits, their turnover rate is very high.

The people working at these companies are ambitious and high-performing with in-demand skill sets. If they stick around for a year and find their role isn’t challenging enough or don’t have a clear career path, they’ll move elsewhere.

Highly skilled workers may also use those companies as a launch pad to negotiate higher salaries elsewhere.

Working for household names can also set expectations too high, and the grueling interview process can take months. People who land positions at these companies may suffer from “arrival fallacy” (the feeling that once you’ve made it, you’ll be happy) once they finally start the job. By their turnover rate standards, it won’t be long before many look for the next challenge.

To avoid the high turnover fate many prominent tech companies face, nurture all of your new and existing employees, so they don’t look elsewhere. Give them challenging objectives, ownership over their projects, and room to grow.

What people want from their employers in 2022

The pandemic’s rapid change in how we work catalyzed a serious priority shift as employees worldwide unlocked much better work-life balance opportunities.

People want flexibility

Forced remote work and maintained productivity helped build trust between employers and employees. Keeping numbers up while working away from the gaze of managers gave employees the leverage to decide when, where, and how they do their job.

It helped people realize they could spend more time with their families, get things done outside peak hours, dedicate more time to their passions and not waste hours commuting. Flexibility allows people to work from anywhere and not be at their desks for a fixed time every day.

PwC’s Hopes and Fears survey also found that 62% of people prefer hybrid work models as it helps them to maintain a more healthy work-life balance.

People want jobs with purpose

As well as offering flexible work styles, employers must provide transparency about how they do business. More than ever, employees want reassurance that they are making a difference and are reducing their environmental impact.

And yet, only 23% of respondents to the PwC survey said their employer helps them reduce the environmental impact of their work.

It’s a job seeker’s market

A supply and demand issue is another trending cause of high employee turnover rates. There are more jobs than talent, especially in growing tech hubs like Toronto. This means job seekers know that if this role isn’t a great fit for them, there’s another opportunity waiting.

Let’s explore ways to improve employee turnover to avoid your employees jumping ship to any available open roles.

How to improve employee turnover

As we’ve seen in the big tech companies, your brand name, your salary, or your swanky office space isn’t enough to retain top performers. Employees today need to feel like their job has purpose, they want to feel like what they contribute matters, and they want to enjoy their day-to-day responsibilities.

Implementing the below points of action will help you slash employee turnover and build loyalty amongst your employees.

Better onboarding processes

The relationship you build with new hires will influence their decision to stay with you or not. Create an onboarding process that makes employees feel valued from the offset and maps a journey for them at your company.

The 30-60-90 day onboarding plan is a popular structure. It gives new hires the first 30 days to learn the scope of their role and day-to-day tasks. The following 30 days will allow them to set goals and targets, followed by an increase in autonomy and workload by the third month.

Screenshot of 30-60-90 onboarding plan structure

Defining objectives and how you’ll measure them manages expectations and helps new team members integrate and quickly feel like they’re part of the team. Enabling your new hires to see their future at the company can help them feel more engaged and less like they want to resign.

Conduct ongoing training and development

To keep employees engaged and avoid boredom, give them ample opportunity for career growth. Ongoing training programs directly influence your employee retention.

Giving your staff clear progression plans, upskill requirements, and timelines to get promoted can help reduce the chances they’ll start searching for a new job. Hiring and training new talent is much more expensive than training your existing workforce.

Host regular feedback sessions

It’s hard to retain employees when you don’t know if they’re happy. Regular feedback sessions can help you understand how people feel and what improvements they’d like to see.

Hold open sessions and listen carefully to feedback; sometimes, employees may be too shy to say what they mean. Offer the opportunity for anonymous feedback if you think it will help people be more honest.

Tracking employee satisfaction regularly will help you understand areas in need of improvement.

Provide practical tools for the role

If your workforce doesn’t have everything they need to get their work done efficiently, you lose productivity. Provide a work environment optimal for people to achieve their goals while ensuring their wellbeing.

In the remote environment, it’s becoming popular to provide stipends for business tools and furniture so employees can work comfortably from home.

Screenshot of Remote Work Allowance Example

Access to these simple tools will help boost efficiency and show your people that you care. Stipends are a great way to avoid resentment from employees funding their own office supplies at home.

Ensure excellent management

Management isn’t easy, especially in rapidly growing companies. To get it right, invest in training your team leaders and managers.

Management requires a lot of soft skills; and the remote work shift changed the game entirely. If your leadership team hasn’t been through remote or hybrid-specific training, perhaps it’s time. Leading from a distance is very different from leading in an office.

Managers also need regular check-ins and mentors to help them grow as leaders. Appointing great leaders in your business helps foster inclusion amongst co-workers, reducing their desire to quit.

Help employees find meaning in their role

Understanding what employees want from their role is another important aspect of keeping them in the company. They’re more likely to stay motivated if they feel they’re impacting the wider business.

Motivation boosts productivity, so drive motivation levels by helping people feel needed. Share figures and analytics with your team to show the effect their work has on the company’s growth.

Share positive customer feedback with everyone so they see what they’re doing makes a difference in the lives of others. Information transparency will help everyone feel like they’re working towards a common cause.

Provide wellness and mental health support

Burnout is a pressing issue that can severely affect the performance and health of your team. To avoid burnout, you need to take care of your employees’ health. After all, healthy employees are happy ones.

Whether offering them extra time off when they’ve been working on a big project or giving them flexible hours, employee wellbeing should be at the top of your retention agenda.

Other ideas to look after wellbeing include offering healthclub subscriptions as part of employee benefits packages, therapy sessions, yoga classes, and access to healthy food if you have a physical location.

Poll employees or have open conversations and make sure that employees know who they can talk to if they have issues that may affect their work. Provide support for people under intense pressure or stress.

Hold exit interviews

To understand why people leave your business, you need to ask. Offer comprehensive exit interviews to everyone who leaves the company.

In-person interviews should be with someone who isn’t a direct line manager or won’t give a reference for future roles to ensure an open and honest exchange.

Knowing what didn’t work well can help you prevent the same from happening to new hires or existing employees.

Integrity attracts talent

Employees have the upper hand in the current climate of resignation and skill shortages. To attract and retain good employees, you need to take a 360 approach to what you offer your teams.

Give your people opportunities for career development, training, and flexibility, and help them feel included and valued in the workplace.

Are you looking to hire new team members? Polymer takes the hassle out of hiring. Streamline your hiring process so you can spend more time keeping your people engaged and happy.

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