Employee turnover refers to the rate at which employees leave an organisation and are replaced by new employees over a specific period. It represents the percentage of workforce that departs voluntarily or involuntarily and requires replacement, serving as a key metric for organisational health, employee satisfaction, and operational stability.

Types of employee turnover

Voluntary vs involuntary turnover

Voluntary turnover

Employee-initiated departures where individuals choose to leave for personal reasons, better opportunities, or dissatisfaction with current employment.

• Resignations for new job opportunities
• Career changes or industry transitions
• Personal circumstances (relocation, family needs)
• Retirement decisions
• Return to education or entrepreneurship

Involuntary turnover

Employer-initiated separations due to performance issues, misconduct, or organisational changes.

• Terminations for poor performance
• Dismissals for policy violations or misconduct
• Layoffs due to economic conditions or restructuring
• Position eliminations or downsizing
• End of contract or temporary employment

Functional vs dysfunctional employee turnover

Functional turnover

Departures that benefit the organisation by removing poor performers or allowing positive change.

• Low-performing employees leaving voluntarily
• Employees in wrong roles finding better fits elsewhere
• Natural attrition creating advancement opportunities
• Departure of employees resistant to necessary changes

Dysfunctional turnover

Loss of valuable employees who the organisation wanted to retain.

• High-performing employees leaving for competitors
• Key talent departing due to dissatisfaction
• Loss of employees with critical skills or knowledge
• Departure of future leaders or high-potential individuals

Avoidable vs unavoidable employee turnover

Avoidable turnover

Departures that could have been prevented through organisational action.

• Resignations due to poor management or workplace culture
• Departures caused by inadequate compensation or benefits
• Turnover resulting from lack of career development opportunities
• Separations due to work-life balance issues

Unavoidable turnover

Departures beyond organisational control or influence.

• Spouse relocation requiring family move
• Serious health issues preventing continued employment
• Career changes to completely different industries
• Retirement at normal retirement age

Causes and contributing factors why employees leave

Management and leadership issues

Poor supervision

Inadequate management skills, lack of support, micromanagement, or inconsistent leadership approaches that frustrate employees and reduce job satisfaction.

Communication problems

Lack of clear direction, insufficient feedback, poor information sharing, or failure to involve employees in decisions affecting their work.

Recognition deficits

Absence of appreciation, acknowledgment, or credit for good work, leading to feelings of undervaluation and decreased motivation.

Career development limitations

Lack of advancement opportunities, inadequate training and development, or unclear career paths within the organisation.

Compensation and benefits

Below-market pay

Salaries that don’t compete with industry standards or fail to reflect employee contributions and market value.

Inequitable compensation

Pay disparities between similar roles, unfair performance-based increases, or perceived favouritism in compensation decisions.

Inadequate benefits

Health insurance, retirement plans, or other benefits that don’t meet employee needs or expectations compared to available alternatives.

Limited financial recognition

Absence of bonuses, profit-sharing, or other financial incentives that recognise exceptional performance or company success.

Work environment and culture

Toxic workplace culture

Negative atmosphere characterised by conflict, politics, harassment, or discrimination that makes the workplace unpleasant or stressful.

Work-life balance issues

Excessive hours, unrealistic deadlines, lack of flexibility, or organisational expectations that interfere with personal life and wellbeing.

Job design problems

Roles that are boring, overwhelming, unclear, or don’t utilise employee skills and interests effectively.

Physical environment

Uncomfortable, unsafe, or inadequate working conditions that affect employee satisfaction and productivity.

Organisational factors

Lack of job security

Uncertainty about employment continuity, frequent layoffs, or organisational instability that creates anxiety and encourages job searching.

Change management issues

Poorly managed organisational changes that create confusion, stress, or resistance among employees.

Mission and values misalignment

Disconnect between personal values and organisational purpose, ethics, or business practices.

Resource constraints

Insufficient tools, technology, or support to perform job effectively, leading to frustration and reduced effectiveness.

Personal and external factors

Life changes

Major personal events such as marriage, children, ageing parents, or health issues that require different work arrangements or priorities.

Geographic considerations

Desire to relocate for family, lifestyle, or cost of living reasons that require leaving current employment.

Career aspirations

Professional goals that can’t be achieved within current organisation, leading to external opportunities pursuit.

External opportunities

Market conditions, industry growth, or specific opportunities that offer significantly better compensation, role, or advancement potential.

Measuring employee turnover

Basic employee turnover rate formula

Annual Turnover Rate = (Number of Departures / Average Number of Employees) × 100

Monthly Turnover Rate = (Monthly Departures / Average Monthly Employees) × 100

Example: If 50 employees left during a year when the average workforce was 500 employees: Annual Turnover Rate = (50 / 500) × 100 = 10%

Advanced turnover calculations

Voluntary turnover rate

Only includes employee-initiated departures Formula: (Voluntary Departures / Average Employees) × 100

Involuntary turnover rate

Only includes employer-initiated separations Formula: (Involuntary Departures / Average Employees) × 100

New hire turnover rate

Focuses on employees who leave within first year Formula: (New Hires Who Left Within 12 Months / Total New Hires) × 100

Rolling turnover rate

Continuous 12-month calculation updated monthly Formula: (Departures in Past 12 Months / Current Employee Count) × 100

Segmented turnover analysis

Departmental turnover

Separate calculations for different departments, teams, or business units to identify problem areas.

Demographic turnover

Analysis by age group, gender, ethnicity, or other demographic characteristics to identify patterns.

Tenure-based turnover

Examination of turnover rates for employees with different lengths of service.

Performance-based turnover

Analysis of departures segmented by performance ratings to understand quality of turnover.

Role-level turnover

Separate calculations for different job levels such as entry-level, mid-management, and senior leadership.

Costs and impact of employee turnover

Direct costs

Recruitment expenses

Job posting fees, recruiter costs, advertising expenses, and time spent on candidate sourcing and screening.

Selection costs

Interview time, assessment fees, background checks, reference verification, and travel expenses for candidates.

Onboarding expenses

Orientation programmes, initial training, equipment setup, documentation, and administrative processing.

Separation costs

Exit interviews, final payroll processing, benefit transitions, unused vacation payouts, and administrative time.

Indirect costs

Lost productivity

Reduced output during vacancy period, time for new employee to reach full productivity, and impact on team performance.

Training and development

Investment in developing replacement employee skills, knowledge transfer from departing employee, and learning curve inefficiencies.

Overtime and temporary help

Additional costs for existing employees covering extra work or temporary workers filling gaps.

Knowledge loss

Departure of institutional knowledge, client relationships, specialised skills, and informal networks that can’t be easily replaced.

Hidden costs

Team morale impact

Decreased motivation and engagement among remaining employees, especially if popular or high-performing colleagues leave.

Customer relationships

Potential loss of client relationships, service disruptions, or decreased customer satisfaction during transition periods.

Innovation and growth

Reduced capacity for new initiatives, strategic projects, or innovation due to constant recruitment and training needs.

Reputation effects

Negative impact on employer brand, difficulty attracting quality candidates, and potential negative reviews on employer rating sites.

Quantifying turnover costs

Total Cost of Turnover = Direct Costs + Indirect Costs + Hidden Costs

Industry Estimates:

• Entry-level positions: 20-50% of annual salary
• Mid-level positions: 50-125% of annual salary
• Senior/specialised positions: 100-250% of annual salary

Example Calculation for mid-level employee earning $60,000:

• Recruitment costs: $8,000
• Training costs: $12,000
• Lost productivity: $15,000
• Total estimated cost: $35,000 (58% of annual salary)

Turnover prevention strategies

Recruitment and selection improvements

Better job matching

Improve job descriptions, interview processes, and candidate assessment to ensure good fit between employee and role.

Realistic job previews

Provide honest, comprehensive information about role expectations, challenges, and organisational culture during recruitment.

Cultural fit assessment

Evaluate candidates’ alignment with organisational values, work style, and team dynamics during selection process.

Reference and background checks

Thorough verification of candidate qualifications, work history, and potential red flags that might predict turnover.

Onboarding and early experience

Comprehensive orientation

Structured programmes that help new employees understand organisation, role expectations, and available resources.

Buddy systems

Pairing new employees with experienced colleagues who can provide guidance, support, and social integration.

Early check-ins

Regular meetings during first 90 days to address questions, provide feedback, and ensure successful adjustment.

Clear expectations

Specific communication about performance standards, goals, and success metrics for initial period and beyond.

Management and leadership development

Supervisor training

Programmes to develop management skills including communication, feedback, recognition, and employee development techniques.

Leadership accountability

Making employee retention and engagement part of manager performance evaluation and compensation.

Regular one-on-ones

Structured meetings between employees and supervisors to discuss performance, concerns, and career development.

360-degree feedback

Multi-source evaluation systems that help managers understand their effectiveness and areas for improvement.

Career development and growth

Clear career paths

Defined advancement opportunities and promotion criteria that help employees see their future within the organisation.

Skills development

Training programmes, educational support, and development opportunities that enhance employee capabilities and marketability.

Mentoring programmes

Formal or informal relationships that provide guidance, support, and career advice to employees.

Internal mobility

Opportunities for lateral moves, cross-functional experience, and role rotation that provide variety and growth.

Compensation and benefits optimisation

Market competitive pay

Regular salary surveys and adjustments to ensure compensation remains competitive with industry standards.

Performance-based rewards

Merit increases, bonuses, and other financial incentives tied to individual and organisational performance.

Comprehensive benefits

Health insurance, retirement plans, paid time off, and other benefits that meet diverse employee needs.

Total rewards communication

Clear explanation of all compensation elements including base pay, benefits, and other perquisites.

Work environment and culture enhancement

Employee engagement surveys

Regular measurement of satisfaction, engagement, and retention risk factors with action planning based on results.

Recognition programmes

Formal and informal systems for acknowledging good work, celebrating achievements, and showing appreciation.

Flexible work arrangements

Remote work options, flexible scheduling, compressed work weeks, or other arrangements that support work-life balance.

Team building activities

Events, programmes, and initiatives that strengthen relationships and create positive workplace culture.

Communication and transparency

Open door policies

Accessible leadership and clear channels for employees to raise concerns, ask questions, or provide feedback.

Regular communication

Consistent updates about organisational direction, changes, and decisions that affect employees.

Employee voice

Mechanisms for employee input on policies, procedures, and workplace improvements through surveys, committees, or suggestion systems.

Conflict resolution

Fair, effective processes for addressing workplace disputes and grievances before they escalate to departure decisions.

Best practices for HR professionals

Proactive monitoring

Early warning systems

Identification of leading indicators such as decreased engagement, increased absences, or performance changes that may predict turnover.

Stay interviews

Regular conversations with valuable employees to understand their satisfaction, concerns, and factors that influence their decision to stay.

Pulse surveys

Frequent, brief surveys to monitor employee sentiment and identify emerging issues before they lead to departures.

Manager training

Education for supervisors on recognising retention risks and having effective conversations with team members about job satisfaction.

Strategic approach

Retention strategy

Comprehensive plan that addresses multiple factors influencing turnover with specific initiatives and measurable goals.

Segmented analysis

Different retention approaches for various employee groups based on role, performance, potential, or demographic characteristics.

Resource allocation

Strategic investment in retention initiatives with highest return on investment and greatest impact on valuable employees.

Leadership engagement

Active involvement of senior leadership in retention efforts and accountability for turnover results.

Continuous improvement

Regular review

Ongoing assessment of turnover trends, causes, and intervention effectiveness with adjustments based on results.

Best practice research

Staying current with industry trends, academic research, and innovative approaches to employee retention.

Benchmarking

Regular comparison with industry standards and high-performing organisations to identify improvement opportunities.

Success measurement

Clear metrics and evaluation criteria to assess the effectiveness of retention initiatives and overall turnover management.

Employee turnover represents one of the most significant challenges and opportunities in human resource management. While some level of turnover is natural and even beneficial for organisational renewal, excessive turnover can be costly and disruptive.