What is Employee Turnover Rate? | HR Glossary

Employee turnover rate is the percentage of employees who leave a company during a specific period, typically measured on a monthly or annual basis.

Employee turnover rate is a key HR metric that helps businesses understand how frequently employees leave their organization. It includes both voluntary turnover (employees who resign) and involuntary turnover (employees who are terminated or laid off). High turnover can indicate problems within the company, such as poor work conditions, lack of career growth, or low employee satisfaction.

The formula for calculating employee turnover rate is:

\text{Employee Turnover Rate} = \left( \frac{\text{Number of Employees Who Left During a Period}}{\text{Average Number of Employees During the Same Period}} \right) \times 100

For example, if a company has 200 employees at the start of the year and 180 at the end, and 30 employees left during that year, the turnover rate would be:

\left( \frac{30}{(200+180)/2} \right) \times 100 = \left( \frac{30}{190} \right) \times 100 = 15.79\%

There are different types of employee turnover:

Voluntary Turnover: Employees leave by choice (e.g., resignation, retirement).
Involuntary Turnover: Employees are terminated or laid off.
Internal Turnover: Employees move to different roles within the company.
Functional vs. Dysfunctional Turnover: If low-performing employees leave, it's functional; if high-performing employees leave, it's dysfunctional.

Why It Matters

Monitoring employee turnover rate is essential for HR professionals and business leaders because it affects company stability, productivity, and financial health. A high turnover rate can lead to increased recruitment costs, loss of company knowledge, and decreased morale among remaining employees.

Key reasons why turnover matters:

Cost Implications: Hiring and training new employees is expensive.
Productivity Loss: Frequent turnover disrupts team dynamics and efficiency.
Company Reputation: High turnover can damage an employer’s brand.
Employee Satisfaction & Engagement: A high turnover rate may indicate dissatisfaction within the company.

Reducing turnover requires effective HR strategies, such as offering competitive salaries, fostering a positive work culture, providing career growth opportunities, and ensuring strong leadership.

FAQ

How do you reduce employee turnover?

To reduce employee turnover, companies should:

Improve hiring processes to find the right talent.
Offer competitive salaries and benefits.
Provide career development and training.
Foster a supportive and engaging work culture.
Conduct exit interviews to understand why employees leave.

What is a good employee turnover rate?

A healthy turnover rate varies by industry. Generally, a rate below 10% is considered good, while anything above 20% may indicate issues that need attention.

How does employee turnover affect a company’s bottom line?

Turnover increases recruitment, training, and operational costs. It also reduces productivity and impacts team morale.

What industries have the highest employee turnover rates?

Industries with traditionally high turnover include retail, hospitality, and customer service, where job conditions can be demanding and salaries lower.

Can turnover ever be beneficial?

Yes, some turnover is necessary to bring fresh talent and new ideas into a company. However, excessive turnover is usually harmful.

Employee Turnover Rate