Employee Turnover: Meaning, Turnover Rate Formula and Causes

Every company loses people. Some retire, some move to a competitor, some are let go. Whether that is a problem only becomes clear with one number: the turnover rate. This guide explains what employee turnover means, how to calculate the turnover rate with a simple formula, which types of turnover there are, what drives high turnover and what it costs. It ends with the question most turnover reports leave out: what happens to the knowledge of the people who leave?

What is employee turnover?

In human resources, turnover refers to the employees who leave an organization. The turnover rate is the percentage of the workforce that leaves over a given period. Most organizations measure it for a calendar or fiscal year, and many also track it by department, team or location to see where departures cluster.

People leave for many reasons: resignation, termination, layoffs, retirement, death or a transfer to another part of the organization. Outside pressures such as the job market, finances or family needs also play a part, both in individual decisions and in the overall rate.

Turnover vs attrition

Employee turnover, attrition and churn are often used as synonyms, but there is a useful distinction. Turnover covers both voluntary and involuntary departures, and the role is usually refilled. Attrition usually describes voluntary or natural departures, such as resignations and retirement, after which the position may stay unfilled. Employee churn is sometimes used for both kinds of departures combined. If you see an attrition rate in a report, it is usually calculated with the same basic formula as the turnover rate below, only with a narrower set of departures.

Types of employee turnover

A single number tells you little. You can only read it once you know who left and why. These distinctions are common:

How to calculate the turnover rate

The most common formula divides the number of departures by the average headcount:

Turnover rate = departures in the period ÷ average headcount × 100

The simplest way to get the average headcount is to add the headcount at the start and at the end of the period and divide by two. Averaging the twelve month end figures is more precise if your headcount changes a lot during the year.

Example: a business has 40 employees on January 1 and 44 on December 31. During the year 6 people left.

• Average headcount: (40 + 44) ÷ 2 = 42
• Turnover rate: 6 ÷ 42 × 100 = 14.3 percent

Some companies divide by the headcount at the start of the period instead. That is simpler but less accurate when the team grows or shrinks during the year. Depending on your question, these variants are useful:

More important than the perfect formula is using the same one every time. Only then can you compare years, sites and teams. Write down whether interns, fixed term contracts and internal moves count.

What is a normal turnover rate?

There is no universal benchmark. Turnover varies widely by industry, type of job, region and labor market. Gallup, citing the U.S. Bureau of Labor Statistics, put the overall annual turnover rate in the U.S. at 26.3 percent in 2017, but that figure mixes very different sectors and says little about your own business.

Three comparisons are more useful than any number from the internet: with your own previous years, with similar companies in your industry and region, and between your own teams. A sharp rise in voluntary turnover in a single team is a clearer warning sign than any industry average. In a small business a single departure can move the rate a lot, so look at the people behind the percentage.

Causes of high employee turnover

Voluntary turnover rarely has a single cause. These come up again and again:

• Management: little recognition, rare one to one conversations, unclear expectations.
• Growth: no visible path to more responsibility or new work.
• Pay: salaries clearly below the market.
• Workload: constant overtime, covering for others, too few people.
• Poor fit: role and person do not match, often visible in high first year turnover.
• The market: other employers actively recruiting your people.

Much of this can be changed. According to Gallup, 52 percent of voluntarily exiting employees say their manager or organization could have done something to prevent them from leaving. The most reliable way to find out what drives turnover in your company is a well run exit interview, with the answers analyzed across many departures rather than one at a time.

What employee turnover costs

Every departure has costs that rarely show up on a balance sheet. Direct costs include job ads, time spent interviewing, onboarding and overtime in the team until the role is filled. Indirect costs are harder to measure: lower productivity, mistakes, delayed projects and lower morale among the people who stay.

How much this adds up to depends heavily on the role. Gallup estimates that replacing an individual employee can cost from one half to two times their annual salary and calls that a conservative estimate. Other estimates range from 30 to 200 percent of salary. Treat these as orders of magnitude, not as exact figures for your business.

One cost is often missing from the calculation: the knowledge that walks out of the door. Which customers have special arrangements, why a process works the way it does, who to call when a system breaks. How this knowledge loss when employees leave happens and how to limit it is covered in a separate guide. For a rough figure for a single role, the free knowledge loss calculator estimates the cost of a handover gap from salary, seniority and the length of the vacancy.

How to reduce employee turnover: six steps

1. Measure it properly

Calculate turnover at least once a year, split into voluntary and involuntary, and for each team. Without that split you cannot see where to act.

2. Ask why people leave

Hold an exit interview with everyone who resigns and collect the answers in one place. Stay interviews with the people who are still there add the other half: what keeps you here, and what would make you leave?

3. Take onboarding seriously

High first year turnover often points to weak onboarding. A clear 30 60 90 day plan gives new hires direction in their first three months. An onboarding checklist makes sure the desk, accounts and first contacts are ready on day one.

4. Support your managers

Regular one to one meetings, honest feedback and recognition cost little and are the lever managers control directly.

5. Make growth visible

Show which next steps are possible inside the company. An internal move is usually better than losing someone to a competitor.

6. Check pay and workload

Compare salaries with the market and watch teams that work above capacity for months. People who keep covering for colleagues who left eventually leave too.

When someone leaves: keep the knowledge

You can reduce turnover, but never to zero. Retirement, parental leave, relocations and good offers elsewhere are part of working life. Next to your retention efforts you therefore need a plan for the moment a resignation lands on your desk:

• Before: use a skills matrix to see which tasks depend on one person, and cover key roles with succession planning.
• After the resignation: start the handover right away instead of in the last week. The guide to employee offboarding shows what an orderly process looks like.
• During the notice period: pass on knowledge in a structured way, for example with a knowledge transfer plan or job shadowing while both people are still there.
• At the end: leave something in writing that still helps when the successor starts months later, such as an employee handover document.

Conclusion

Employee turnover is the share of employees who leave an organization in a given period. You calculate the turnover rate as departures divided by average headcount, times 100, and compare it mainly with your own previous years and between your teams. The number only becomes meaningful once you separate voluntary from involuntary turnover and understand the reasons. And because not every departure can be prevented, every retention strategy also needs a plan to keep the knowledge of the people who go.